The Costs of Purchasing Your Own Home
Keep your Spending in Check – with a Homebuyer’s Checklist!
Your dream home is $250,000! You breath a sigh of relief…you can just afford the monthly mortgage payments on that amount.
However when you seek financial advice from your mortgage broker, suddenly their talking about extra cost for things like own payment averages, closing costs, real estate agent and broker commissions. You suddenly realize that there is more to purchasing a home than just the “purchase price!
How to keep a head of home closing costs:
Create a homebuyer’s budget - This will help you figure out what you can afford, based on what you want. It might also help you start cutting back on daily spending to save for your home purchase. Use my handy homebuyer’s checklist below, to keep on top of all the money you will need to put aside for closing costs, etc.
Set your maximum price – and stick to it! You’re pre-approved mortgage amount will likely be way more than you can actually afford in monthly mortgage payments – not too mention all of the closing costs on top of that. As a general rule, your mortgage payments shouldn’t be more than 30 percent of your before-tax income. So go to your open houses with a maximum price in mind – actually if the house is out of your price range, don’t even bother looking at it.
Shape up that debt – Get a copy of your credit report and check it for any inaccuracies. You are entitled to a free credit report on an annual basis – just check the Federal Trade Commission website for details. If you have been lazy with your loan payments, the time leading up to mortgage approval is the time to prove you are a responsible credit customer.
Invest your money – Investments are what’s known as personal assets – and the bank looks fondly on personal assets of any kind – such as property, automobiles, and especially savings accounts and investments. These show lenders that you are responsible with money. So take money out of low interest bank accounts and put it into high interest savings accounts and short term investments that will help you make money – on your money. Note: Only transfer funds into different accounts if you don’t need a home deposit within the next 5 years.
Do your mortgage research – You need to do your homework, because the best mortgage isn’t just going to fall into your lap. Start with handy online home loan calculators, like this one at http://www.bankrate.com/brm/mortgage-calculator.asp Bankrate.com. This website also posts the most current average interest rates. If you monitor interest rates leading up to your mortgage approval, you will know when the time is to apply. A good mortgage calculator will break down costs into the following:
- Mortgage amount
- Mortgage term
- Interest rate
- Mortgage start date
- Extra payments
- Amortization term
Do your home research – Decide what particulars you want – for instance property type (condo, house, townhouse), neighborhood (a home in the suburbs or a studio downtown), and narrow down your choices by features – near the park, air conditioning, a pool, fireplace, and etc. Being aware of what you want – or rather what you need vs. what you can live without – can save you a lot of money in the long run.
Look into grants – for instance in many states first time homebuyers will qualify for a First Home Owner's Grant. Check with your real estate broker or loan officer to find out if you qualify.
Your handy homebuyer’s checklist
The following checklist outlines all of the fees – outside of the purchase price – that you will have to shill out on a new home. I know that when I purchased my first home I was totally taken aback by the fact that I owed more than just my down payment. Mind you, the following list is just a general or typical list. Keep in mind that many states vary according to fees and so forth, but the following list is made up of the most common fees and charges. If you budget for these, you should be a head of most first time homebuyers.
- Lenders fees – this will vary from lender to lender (get an average)
- Application fee, plus settlement and search fees: Roughly $600 to $800
- Valuation fee: Roughly $150 - $250, but some lenders include this in the application fee.
- Monthly service fee: Roughly $8 to $10
- Mortgage insurance: This will depend on the amount borrowed towards the price of your home. This is also only a consideration if your mortgage exceeds 80% of the worth of the home. Roughly $1,500–$3,500.
- Government fees: Again, this varies from state to state (get an average).
- Stamp duty: This fee is based on your mortgage amount.
- Stamp duty: A second stamp duty fee is based on the purchase price of the home – it will vary based on this price.
- Land transfer tax: Again, depends on the price of your home.
- Mortgage registration: Roughly $75 to $80, depending on lender fees.
- Solicitor fees: Varies according to lender. Roughly: $500-$2,500.
- Search fees: Scale depends on lender. Roughly $200-$400.
- Agency and sundries: This typically encompasses your settlement and disbursements fees. Roughly $100-$200.
- Building report: Roughly $250-$500.
- Pest report: Roughly $150-$350.
- Home builder’s insurance: Varies from $200-$500.
As mentioned, the above checklist is only a guideline. Closing costs on the sale of a home do vary from state to state, and even from lender to lender. However using this list as a general guideline will help you budget for these unforeseen closing costs, so that you don’t loose your dream home.
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