How much money you’ll really need to buy your first home

 

If you’re thinking about buying your first home, you’re probably putting money together for a down payment.

However, it isn’t the only sum of money you’ll need to come up with before getting the keys to your new home.

And once you’ve done that, you’ll have to pay for the cost of setting up and maintaining your home.

It’s always more than people expect, said Sophia Bera, CEO and founder of Gen Y Planning, an Austin-based financial planning firm.

According to the St. Louis Federal Reserve, the median sale price of houses sold in the United States in the first quarter of 2020 was $327,100.

Starter homes, on the other hand, are usually less expensive.

In the first quarter of 2020, the National Association of Realtors found that the starting median home price in U.S. metro areas was $233,400.

If you put down a 20% down payment, as Bera suggests, you’ll need $46,680.

A 10% down payment will cost you $23,340, while a 3% down payment would cost you $7,002.

Then there are closing expenses, which can run into the hundreds of dollars, as well as other sometimes-ignored funds you’ll need to get started, such as furniture and maintenance funds.

Here are some things to keep in mind while buying your first home.

Rates on mortgages

Luring buyers into the market, mortgage rates are at an all-time low.

The average 30-year fixed mortgage rate is 3.4 percent, according to Bankrate.

However, this does not guarantee that you will receive that rate.

Banks consider your credit score, the type of loan, and the amount of money you put down.

It also depends on the lender; some may provide you with a better deal than others.

“When we report those statistics, we’re looking at pretty high credit-worthiness people on average,” said Skylar Olsen, Zillow’s senior principal economist.

“We’re talking about a 20 percent down payment here.”

There are various sorts of loans, such as 30-year or 15-year fixed-rate conventional mortgages.

ARMs, or adjustable rate mortgages, may have a lower beginning rate.

The rate on an adjustable rate loan rises after a set length of time.

FHA loans, which have minimal down payments and closing expenses and are backed by the federal government, are also available.

They also come with a one-time premium of 1.75 percent of the home’s purchase price.

A mortgage insurance premium of $4,084.50 is required for a $233,400 home.

You’ll also have to pay monthly insurance payments, which are calculated based on the size of your loan, the length of your mortgage, and your loan-to-ratio value.

It ranges from 0.45 to 1.05 percent of the loan amount.

A down payment or private mortgage insurance is generally not required for service members and veterans who apply for a VA home loan.

The current rate for a 30-year fixed loan is 3.4 percent, according to Bankrate.

Get pre-approved for a mortgage after shopping around for the best interest rate and costs.

A payment is required.

This is the portion of the purchase price that you must pay yourself.

The rest is covered by your mortgage.

A 20% down payment may seem like a lot, but it has one big advantage: if you put less than 20% down, you’ll have to pay for “primary mortgage insurance,” or PMI, which costs money.

Olsen says that this cost is added to your mortgage payment and “raises your effective interest rate.”

According to Zillow, the cost of PMI varies, but premiums for each $100,000 borrowed can range from $30 to $70 per month.

Bera, on the other hand, said that you should not use your emergency funds to pay for your down payment, though.

“Having at least three months’ net pay saved for emergencies is still critical,” she said.

Closing expenses

There are a slew of fees associated with buying a home, many of which are bundled together as closing costs.

An application fee, a bank appraisal of the home’s value, an attorney charge, an escrow fee, a credit report, homeowners’ insurance, title insurance, loan origination fees, transfer taxes, a title search fee, and recording fees are all examples of expenses.

It all adds up to between 2% and 5% of the home’s purchase price, and it’s due when you close on the house.

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Expect to pay between $4,668 and $11,670 in closing costs for a $233,400 home.

You may be able to incorporate a home inspection into your closing fees or pay for it in advance.

US Department of Housing and Urban Development says that the costs usually fall between $300 and $500, but they can be more or less.

Shop around to find which lenders can offer you lower closing fees.

If you’re a member, Bera recommends checking out your local credit union.

She explained that credit unions sometimes provide some of the greatest rates and closing cost deals.

Costs of relocation

It’s time to move your possessions in after the house is yours.

If you’re attempting to save money, enlist the help of several friends to fill up a hired truck.

Alternatively, you might hire a moving company.

According to Moving.com, a local move will set you back $1,250 on average.

According to the site, the average cost of a long-distance move is $4,890 for a distance of 1,000 miles.

Fund for upkeep

Your home will most likely require some TLC throughout the first year.

You could wish to repaint, make cosmetic improvements, and purchase furnishings.

To offset those early costs, Bera recommends setting aside $5,000 to $10,000 in a home maintenance fund.

Moving forward, you should set aside some money each year for house repairs and maintenance so that if something unexpected happens, such as a leaky roof, it doesn’t break your budget.

According to Olsen, you should set aside 1% to 4% of your home’s value each year for maintenance and repairs.

The sum varies depending on the home’s age, as older properties may require more work than newer homes.

Other ‘under-the-radar’ expenses

You’ll have to pay property taxes to your local government after you purchase the home.

It’s calculated using your property’s assessed value and the tax rate in your town.

It also varies a lot from one state to the next.

According to Wallet Hub research, Hawaii has the lowest rate, with inhabitants paying $560 in annual taxes on a $205,000 home.

The highest rate is in New Jersey, where homeowners pay $5,064 for a home worth the same amount.

According to the survey, the average homeowner pays $2,375 in property taxes every year.

Olsen also reminds us that future tax rises are likely.

Your taxes will climb as your home appreciates and is re-evaluated by the tax assessor’s office.

According to her, the coronavirus epidemic has left towns cash-strapped due to lower sales tax and income revenue.

That could lead to a future tax increase.

If your property is part of a homeowners association, you may also be required to pay a homeowners association (HOA) fee.

The money will be used to cover the cost of public-area maintenance and repairs.

According to Realtor.com, the fees vary greatly but might cost between $200 and $300 per month.

According to Olsen’s 2017 Zillow research on the hidden costs of homeownership, there’s also homeowners insurance, which costs slightly less than $1,000 per year, and utilities, which cost more than $3,000 per year.

Finally, if you choose, optional services may add up.

Lawn care, gutter cleaning, and HVAC (heating, ventilation, and air conditioning) maintenance are all examples of this.

According to the analysis, these hidden costs can cost homes in the United States $9,080 each year.