When thinking about the cost of buying a house, many people consider only the down payment and the monthly mortgage payments. There are, however, many more costs involved in buying a house, including several one-time costs (many of them upfront) and not a few recurring costs or expenses. So, in order to stay within your range of affordability, it pays to be aware of and understand all the various costs. To help you out before you make that huge, long-term financial commitment, here’s a rundown of the costs of buying a house in 2020.
One-time Costs of Buying a House in 2020
The initial, one-time costs of buying a house (especially in 2020) can add up to a substantial amount of money. So in order not to be taken by surprise, consider these costs . . .
The downpayment is a large one-time cost that is typically the biggest purchasing hurdle for most buyers. Ideally, you want to pay 20% down. This will reduce mortgage payments and long-term interest paid, as well as allowing you to avoid paying for private mortgage insurance. But for many buyers in 2020, a 20% down payment just isn’t possible.
Still, there are several options for buying a house in 2020 with a lower down payment. Your mortgage payments may be higher, with more interest paid over the long haul, but you’ll still be able to buy a house. Consult your local agent by calling 808-634-4518 to find out about low- and no-down payment options such as FHA loans and VA loans.
Most buyers are aware that they’ll have to pay some closing costs, but do you really know much they can add up to? As an example, closing costs for a $300,000 home are typically $6,000 to $15,000.
These lender and third-party fees can be a huge financial burden for buyers who have already sunk tens of thousands of dollars in the down payment. You can, however, get a good idea of what closing costs will be by shopping lenders and asking for closing cost outlines ahead of time. This way, according to industry experts, “you’ll have time to negotiate some of the costs and shop around for lower fees on others.”
COST OF RESERVES
While not exactly a cost of buying a house, keeping back reserve cash still takes money out of circulation in your personal economy – so it does in fact feel like a cost. Here’s why you need to have these reserves after making the down payment and paying closing costs.
“Mortgage companies don’t want you to deplete your savings after buying a house. Rather, they want to ensure that you still have some money left over, so that you have the ability to make your mortgage payments, even if something happens to your income. Typically, when you’re buying a primary residence, they’ll ask to see that you still have at least two months of reserves — or two months’ worth of mortgage payments left.
Ongoing/Recurring Costs of Buying a House in 2020
Besides the substantial one-time costs, buying a house in 2020 involves a number of ongoing or recurring costs. These include . . .
Of course, you’ll have to make a mortgage payment every month for the next 15 or 30 years. That’s it’s so important to comparison shop for your mortgage loan.
“Nearly half of home buyers don’t comparison shop for home loans, according to the Consumer Financial Protection Bureau. That can bloat your monthly mortgage payment and cost you a big chunk of money over time.”
An annually recurring cost of buying a house is the property tax. Local governments and municipalities levy property taxes to fund schools and other municipal projects.
And this home-buying cost often increases over time, which can increase your monthly mortgage payment. “increases in the home’s assessed value, whether due to renovations or overall market conditions, also cause property taxes to rise periodically, which could increase your monthly payment if your lender is set up to pay the taxes on your behalf.
And, of course, you’ll need homeowners insurance (and possibly hazard insurance), which is typically required by mortgage lenders. This can be a sizeable chunk of money, especially if the house is located in, say, a flood zone.
According to experts, “the average annual premium for the most common form of homeowners insurance was almost $1,400 in 2016. Hazard insurance costs will also be determined by the risk factors in your area, such as floods and earthquakes.”
PRIVATE MORTGAGE INSURANCE
If you pay less than 20% down, another typical cost of buying a house in 2020 is private mortgage insurance. This insurance is designed to protect the lender in case of default and typically amounts to about 2% of the loan amount, paid annually.
Here’s how private mortgage insurance works: “There can be an upfront amount paid, as well as premiums due each month, lumped in with your loan payment until the remaining principal balance on the mortgage dips below 80% of the home’s value. Your lender may automatically cancel mortgage insurance charges when you owe 78% of the principal or less, but until then, this is an extra cost to factor into your monthly budget.”
MAINTENANCE AND REPAIRS
You will also have the infrequent but ongoing costs of home maintenance and repairs. This cost will depend, of course, on the condition of the home, but will be necessary, nevertheless, even for new construction. It may be a delayed cost but will be an inevitable cost at some point.
Talk to Your Agent
These are the basic costs of buying a house in 2020, but there may be more, depending on your location, the condition of the house, and your financial situation. So before you take that big financial step, talk to your real estate agent. Your local agent can help you get a handle on all the costs and help you make the right purchasing decision for you.