First-time homebuyers are often shocked that the cost of buying a home goes beyond the property’s purchase price, their mortgage’s down payment, and renting the moving truck. You need to brace yourself for the mountain of hidden costs that comes with the property purchase, which, according to Zillow, could run up to over $9,000 each year, more if you are living in a large city.
There isn’t much you can do to avoid things like homeowner’s insurance, property taxes, and utilities. But what you can do is take into account these and the other costs listed below when establishing your homebuyer’s budget.
1. Homeowner’s Association Dues
Planning to live in a condo? You can expect to pay homeowner’s association fees, which will cover the costs of maintaining the building’s:
- Lobbies
- Hallways
- Elevators
- Pools
- Landscaping
Some neighborhoods and co-ops also charge residents an annual HOA/maintenance fee to cover the cost of road repairs, parks and playground maintenance, and security. Either way, be sure to ask about any HOA fees that may be tied to the property you want to buy.
2. Private Mortgage Insurance
Private mortgage insurance (PMI) only comes in if you can’t make the (often) required 20 percent down payment on your mortgage. The cost of PMI can range anywhere between 1.50 percent to 0.30 percent of your home loan, depending on your credit score and size of your down payment.
Note that PMI typically applies to conventional mortgages. Home loan options like USDA loans and VA loans don’t have PMI but charge another, often smaller, fee.
3. Mortgage Interest
The cost of mortgage interest is highly dependent on your debt, income, credit score, down payment, and loan term.
4. Homeowner’s Insurance
Your home insurance will largely depend on the location of the house. If you live in an area that’s more prone to natural disasters like flooding or landslides, or somewhere with a high crime rate, you can expect to pay more to insure your home. According to the Federal Reserve Bureau, the average annual premium for homeowner’s insurance is between $300 and $1,000.
5. Utilities
Write down an extra $3,000 in annual costs to cover utilities such as water, electricity, and gas. Sure, you won’t have to pay this amount at closing, but it helps to remember it when creating your budget.
6. Property Taxes
In 2016, American homeowners paid around $278 billion in property taxes, which means that each of the 84 million single-family homeowners paid, on average, a little over $3,200 each year. Again, your property tax will depend on the value and location of your home.
To get an estimate of how much you can expect to pay for your home and its related costs, get in touch with mortgage advisor Chris Lamm. Call our offices at 530-282-1166 to schedule a consultation.