Homeownership is a celebrated milestone for several people in America and beyond. For many, purchasing your own home is the crowning moment in the rite of passage to adulthood. It’s also the most significant financial investment many people will ever make in their lives.
There are numerous perks to owning a home, but it’s a costly endeavor. Although every home has a price tag, the actual costs of acquiring a house often exceed the price on the listing. Therefore, it’s essential to know about all these extra costs before committing to a long-term purchase. Below are some insights into expenses you should be prepared for when buying a home.
Down Payment
Your down payment is almost always the first financial consideration you should factor in when estimating how much your home will cost. It’s a portion of the sales price you must pay upfront when purchasing a home. Then, the rest of the sales price will be financed by your mortgage plan. Traditionally, 20% of your home’s total cost is widely considered the gold standard for down payments. Major financial institutions like credit unions and banks offer government-insured and conventional loans, and your choice will significantly impact how much down payment is required to kick-start the home buying process. However, several financial experts advise that the more money you set aside for your down payment, the better. Since homes are significant residential real estate investments, some organizations have taken up property maintenance and management upon acquisition to ensure long-term profitability. Reputable real estate management companies such as Venterra Realty are great examples of such businesses.
Venterra Realty Inc. is a property management company that oversees many apartment homes and communities in 11 major US cities across the southern United States. Their properties house more than 35,000 residents and 11,000 pets. John Foresi and Andrew Stewart established Venterra Realty in 2001 to provide quality real estate management services to clients. The company specializes in identifying, financing, developing, managing, and acquiring multi-family apartment communities. John Foresi from Venterra Realty credits Venterra’s success to their award-winning company culture and dedicated, passionate, and caring employees. Foresi, the CEO of Venterra Realty, also praises the Venterra team’s commitment to improving residents’ lives by guaranteeing industry-leading customer experiences. Venterra Realty self-manages all of your property management aspects because they regard operational control as vital to their efficacy. What’s more, they use industry-leading technology in the property management industry, maintaining high-efficiency standards that benefit residents, investors, and employees.
Closing Costs
Closing costs are third-party and lender fees that you must pay at the end of a house buying transaction. They account for approximately 2% to 5% of the home’s overall purchase price. You can negotiate these fees as part of your offer, and the costs are typically split between the seller and buyer. These prices usually include appraisal fees that must be paid to an appraiser who provides your lender with your home’s market value estimate. Home inspectors who evaluate your house’s condition to determine whether it’s in good condition will also need to be paid inspection fees for their services.
Property survey fees may also be necessary if your lender requires a surveyor to determine your home’s legal boundaries and lot size. Prepaid taxes and insurance, home warranties, title search and title insurance, loan origination, and transfer tax fees are other petty costs that should constitute your entire budget to ensure that you close successfully. As a result, you can consider accessing more cash to help you close by leveraging services such as your local pawn shop. These pawn shop services offer you money for your jewelry, antiques, and other valuables. Pawnbrokers also provide pawn loans that require you to exchange items as collateral for cash, and you can even trade items for merchandise like musical instruments or sporting equipment.
Mortgage Payments
Unless you paid in full for your house upfront, monthly mortgage payments are expenses that you should consider when budgeting for a home purchase. Several factors contribute to how much you’ll pay, including the amount of money you borrowed to purchase your home (principal). Interest rates are also essential, and these costs are the fees your lender charges for the loans they give you to buy your house. Mortgage interest rates often fluctuate, but many borrowers pay below 3% for a thirty-year fixed loan. Homeowners insurance, property taxes levied by the government to fund local services, and HOA dues also influence how much your monthly mortgage payment will be.
You may also need to pay Private Mortgage Insurance (PMI) if your down payment is less than the 20% standard. These premiums secure lenders if you default on repayment. You can pay an upfront sum and continue to defray the balance with premiums that are lumped in with your monthly payments until the remaining principal balance on your mortgage falls below 80% of your home’s value. Consequently, it’s a good idea to set up financial goals that can help you meet your monthly mortgage payments. For example, you can use a savings goal calculator to determine how much money to contribute monthly to reach your savings goal of having your monthly mortgage payment ready every month.
Reserves
First-time homebuyers are particularly unfamiliar with reserves when buying their properties. Reserves aren’t necessarily a cost you must incur when purchasing your home, but these funds are necessary monies you should have in the bank after paying your closing costs and down payments. Several mortgage companies don’t want borrowers to deplete their savings after buying their homes, so they ask to see reserves that can last you for at least two months. This way, they’re more confident in your ability to make good on your monthly payments. Many financial experts suggest three to six months of emergency fund savings when buying your home, so keep this in mind. The ongoing coronavirus pandemic has highlighted the need for emergency savings, as it has hit the global economy hard. Thankfully, vaccines are now available but now’s the right time to conduct COVID-19 testing if you’re a business owner. Some labs offer COVID-19 tests for large groups like employees and conference attendees, so consider partnering with them for fast and reliable COVID-19 tests and results.
There are several costs beyond the mere price tag of a home listed for sale. The points above are examples of some expenses you should plan for to avoid being overwhelmed when closing your home purchase.