Buying a house is a step in the right direction. It proves that you are now more mature to handle bigger responsibilities like paying the mortgage and maintaining a house. But the decision to purchase a property also entails spending a significant amount of money not just on the interest rate or cost of the house itself. Here, we will enumerate some of the most common expenses that every house buyer should be aware of.
The down payment is the first biggest expenditure that you need to prepare when taking out a loan. Depending on which lending institution you’re going to choose, the cost of a down payment is usually at least 20% of the property’s total price. If you are looking to buy a $300,000 home, your down payment will be around $9,000 to $10,500.
There are many financial institutions like credit unions and banks. They typically offer two types of loans such as government-insured and conventional. Conventional loans mean the lender is not backed or insured by the federal government. They often have some of the best rates but may require bigger down payments. Government-insured loans, on the other hand, include:
- U.S. Department of Agriculture (USDA) loans – the target of USDA loans are rural home buyers whose income is not higher than 115% of the adjusted median income. This has zero down payment.
- Federal Housing Administration (FHA) loans – FHA loans are available almost to everyone regardless of their income, ownership experience, and age. It requires a down payment of 3.5% of the total property price. However, you will need to have a credit score of at least 580 to qualify for an FHA loan.
- Department of Veterans Affairs (VA) loans – is for the families and legal spouses of service members and veterans. It requires zero down payment.
Private Mortgage Insurance
Some aspiring homeowners can not afford the full 20% down payment. Because of that, they are required to purchase private mortgage insurance or PMI. PMI is a type of insurance that a borrower must have as a requirement for a standard mortgage loan. Unlike other kinds of coverage, PMI primarily protects the investor, not the person buying the insurance.
The cost of PMI can range somewhere between 0.25% and 2% of your total loan balance per year. It also depends on other factors such as your credit score, loan term, mortgage, and down payment. The types of PMI are as follows:
- Borrower-paid mortgage insurance (BPMI) – is paid at an additional cost that you need to shoulder along with your mortgage. After the finalization of your loan, you would have to pay your BPMI until you reach the 22% value of your home.
- Single-premium mortgage insurance (SPMI) – this is paid in a lump sum that can be done in full when you close the deal, or it can be financed into the mortgage itself.
- Lender-paid mortgage insurance (LPMI) – with LPMI, the lender technically pays for the total cost of the mortgage. You can pay for it over the full course of the loan in the form of higher interest.
Cost of the House Itself
Now that you have an idea about the two top expenditures when buying a house, the next thing that you need to look at is the cost of the actual property itself. Generally speaking, the price differs based on its size and location, but the median price of a house in the United States is around $199,200. However, this cost can still go lower if you are looking at properties in states like Michigan or Ohio. If you plan to buy a house in major cities like San Francisco and New York, you should be prepared to pay at least USD 500,000.
If you are buying a family home, the price of one with three bedrooms, two and a half baths, an open kitchen, marble countertops, a modern gas fireplace, and a spacious backyard is roughly $120 per square meter.
You can also get a brand-new 1,352-square-foot home complete with built-in cabinetry, granite countertops, and stainless steel appliances at around $148 per square meter. If you are looking on purchasing an apartment, you can refer to the following:
- Price per square meter to buy an apartment in the center of the city: $3,600
- Price per square meter to buy an apartment outside of the center: $2,150
It is understandable that buyers only focus on the interior and exterior appearance of the house in the beginning. For many, the number of square feet and rooms are the most important factors to consider when deciding. However, you should also focus on a deeper and more thorough inspection of the house.
If your broker doesn’t have a partner inspector, you should contact professional house inspectors that will take a look at three major components of the house:
- Foundation – check whether the concrete is poured and if it needs correction
- Pre-drywall – check the mechanics and structure before the drywall has been laid
- Full Inspection – a full walkthrough of the whole house to check for water damage and leaks on the plumbing system as well as the condition of the electrical system and the whole HVAC unit
Now that you are aware of the most common expenses when buying a house, you can begin arranging your finances. In doing so, don’t forget to consider the items mentioned above so that you could budget your money wisely. Remember that you have been working hard for this moment, and you would want this house-hunting journey to be an unforgettable life experience.