The Cost of Buying A House: How Much Money Do I Need to Buy A House?
One of the first things that catch your eyes when looking for a house to buy is the listed price of the property.
But many first-time homebuyers are in for the shock of their lives upon learning that they need way more cash than just paying the down payment!
To buy a house, you need cash to settle the down payment and some more. It can be disheartening to know that after scrapping up funds for the down payment, you still need more cash to complete the sale.
Thus, it’s a good time to ponder, how much money do I need to buy a house? Let’s see how much cash it would take for you to pay for the down payment and other fees to complete the deal.
Check out our Tips for First-Time Home Buyers
The Upfront Costs
Home for sale may have an initial price tag, but there are two upfront costs that you need to prepare for because it usually requires a huge amount of cash - the down payment and the closing cost.
The down payment should be 20 percent or more for you to get favourable mortgage rates and do away with paying private mortgage insurance. Lenders are more lenient to borrowers who pay more cash on a down payment. For instance, the home is for sale at £300,000, thus you have to pay £60,000 for a down payment.
This percentage is not generally required, and you may also find mortgage lenders that allow low or no down payment. But these types of mortgage offers are limited to low-income home buyers and those with higher credit ratings. Likewise, the Federal Housing Administration also offers FHA loans with only a 3.5 percent down payment and a minimum credit rating of 580.
The closing cost of buying a house typically range from two to five percent of the purchase price. In the last years, buyers paid an average of $5,800 for the closing costs. The amount varies depending on the location of the property, price, and the real estate market.
Often, the lender and third-party fees are included in the closing costs. It may also cover the appraisal fees, origination fees, credit report costs, title search fees, application costs, and underwriting fees. Some lenders also offer no-closing costs options for buyers who are short on cash to pay for the closing costs. It may also be included in the overall loan, however, remember that this may cost you more because of the interest rates.
Once you’ve paid for the initial costs of buying a house, you have to prepare yourself for the ongoing costs of having a house too. Here are what you should prepare for.
The monthly mortgage payment is a predictable ongoing cost that you should prepare for. There are several mortgage calculators that you can use to come up with an estimate of how much you will pay each month to the lender. For instance, the amount you borrowed is £240,000, the finance charge is a fixed rate of 3 percent for 30 years. Then you should expect to pay a monthly due of £1,011 to include principal and interest.
The rate of the mortgage has a huge impact on your monthly payments, thus it is essential for you to check several lenders for the best rates.
This type of insurance typically covers the replacement or repairs of your home and its contents in case of theft, vandalism, or disasters. The average costs for home insurance are about $2,500 per year, but it can vary depending on the state, condition of the property, and other personal factors.
Proper taxes vary widely by state, county, and the agent who provided the estimate for the annual property tax you’ll pay for your home. The average paid by most homeowners for a single-family home is at £3,400. It is crucial for you to note that property tax is not fixed. It can change annually according to the adjustments made by your local government.
Homeowners Association Fees
HOA fees can fluctuate according to the community where you belong. It can be costly and range from £150 to £1500 each month. The fees cover the amenities which may include pool maintenance, landscaping, rubbish collection, security, pest control, fire alarms, and utilities in common areas. If you are buying a home where there is an HOA, check the fees, cycle of billing, and what they cover.
Maintenance and Utilities
Now that you have a house of your own, you have to be prepared to pay for common utilities such as gas, water, electricity, and internet connection. Maintenance costs may also take up a chunk of your budget to cover the landscaping of your yard, rubbish or recycling collection, snow removal, and upkeep-related costs.
Other expenses you have to prepare for are the bigger costs like emergency home repairs, renovations, HVAC system overhaul, plumbing, and others. Ideally, you should keep one percent value of your home as the budget for emergency home maintenance and repair. So, if your home’s total value is £350,000, keep a budget of £3,500 each year.
Buying a home is one of the most significant financial decision that a person makes in his lifetime. This is why it can also be an emotional rollercoaster ride, especially for first-time homebuyers. Once you decide that you will buy a house, you should be emotionally, mentally, and financially ready. The cost of buying a house does not stop at the listed price, you will need a lot of extra cash for other expenses too. So, how much money do I need to buy a house? Make sure to factor in both upfront and outgoing expenses when drafting your budget. Consider your monthly finances first. You should decide on a mortgage that you can comfortably pay for each month and still have enough to cover long-term and continuing expenses.