What are the Costs of Buying a House?

Buying a house involves more expenses than just the purchase price itself.

Whether you’re looking to buy a home for personal use or to add to your investment portfolio, it’s important to understand the full range of costs involved. In 2021, there are several key factors that will affect the total cost of purchasing a house.

A mortgage quote might indicate that you can afford a certain house, but the expenses of buying a home extend beyond just repaying the mortgage. Significant upfront costs include the down payment, insurance, taxes, and closing costs, all of which can substantially increase the overall expense of buying a home.

Down Payment Costs

To secure a mortgage, you’ll need to make a down payment, which is a percentage of the home’s sale price paid upfront. For example, if you’re buying a $300,000 house and make a $30,000 down payment, your mortgage lender will provide the remaining $270,000. The amount required for the down payment varies based on the home’s price, the type of property, and the specific loan product.

Property Taxes

Property taxes are an ongoing cost and vary depending on your location. They are usually included in your mortgage payment but are separate from the interest and principal. The assessed value of your home might increase if property values rise in your area, leading to higher property taxes. Additionally, the tax amount may adjust after the purchase, influenced by factors like homestead exemptions or changes in local tax rates. For example, in Florida, the property tax cap was 2.1% in 2018 and dropped to 1.9% in 2019, with annual increases generally based on the Consumer Price Index (CPI) or 3%, whichever is lower.

Insurance Costs

Homeowners insurance, and possibly flood or wind insurance, is essential to protect your home from unforeseen events like natural disasters, theft, or vandalism. While not always legally required, some mortgage lenders mandate insurance to safeguard their loan. Insurance costs vary, so it’s wise to compare different offers to find the best rate.

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Closing Costs

Closing costs are fees required to finalize the purchase of a home. These can be negotiated as part of your offer and might be capped based on your mortgage program. Some fees, like title insurance, are shared between buyers and sellers, while others, like inspection and appraisal fees, are typically the buyer’s responsibility.

  • Appraisal Fee: Lenders require an appraisal to ensure the property’s value supports the loan amount. Appraisal costs vary depending on the property type and location, and you may inquire about any rush fees if time is a concern.
  • Home Inspection Fee: Insurance companies often require a home inspection to assess the property’s condition. A thorough inspection can reveal issues that might affect the purchase price or even allow you to back out of the contract if necessary.
  • Survey Inspection Fee: A survey is generally needed for single-family homes or planned unit developments (PUDs) to determine property boundaries. Keep this survey for future reference, especially if you refinance.

Loan Fees

Additional loan-related fees include:

  • Processing Fee: Covers the costs associated with processing your loan application.
  • Underwriter Fees: Typically a fixed amount charged by the lender for underwriting the loan.
  • Prepaid Interest: Required by most lenders to cover interest that accrues from the settlement date to your first mortgage payment.

For more information on the costs of buying a home, connect with us to explore your mortgage options and get a comprehensive understanding of your financial commitments.