Planning for extra costs when buying a home
When it comes to buying a home, the mortgage may be just the beginning of your costs. From insurance to inspections and beyond, get to know all of the expenses associated with buying a new home.
Whether you’re a first time homeowner, or you’re refinancing, it’s always good to have a plan for the extra costs that can come with your new mortgage.
When you're buying a home, there are all kinds of costs to consider. Some you may be aware of and others might be less obvious. The most common one is your down payment. The more you put down the better. In fact, a great money habit is to put 20% of the cost of the home down. Because not only will it help you get a better interest rate and lower your monthly payments. It will also prevent you from having to pay for what's called Private Mortgage Insurance, or PMI. PMI is a type of insurance that lenders require you to pay if you don't have 20% to put down. It protects them if you default on your loan. And it doesn't come cheap. PMI can end up costing you around 2% of your total loan amount depending on how much you put down. This payment can be required upfront, or is sometimes rolled into your monthly mortgage payment as an additional monthly fee. The good news is that with some loans, you won't have to pay PMI forever. But you should check with your lender for more details on that.
If you don't have 20% to put down- it's worth noting that there are other options, like government programs. But whatever plan you choose- it's a good idea to carefully consider all of the costs associated with your decision before you make your move.
Another thing to plan for is closing costs. That can include things like title insurance, appraisals, and attorney fees. Closing costs can run you an additional 3% to 7% of the total loan amount and that’s also on top of your down payment, so be aware. And let’s not forget about those unanticipated expenses like increased energy costs, new appliances, homeowner’s association fees, or simply the cost to keep your yard looking nice. So make sure you’re prepared to budget for all of these things. It’s also not a bad idea to start an emergency fund, just in case something pops up that you weren’t expecting.
Knowing and understanding the extra costs that come along with a new mortgage can help you make a more informed decision when it comes to home ownership.