How much does buying a home really cost?
Once you have figured out the home price range you can afford and the type of mortgage you qualify for, you will need to calculate all of the associated costs of the transaction to make sure you are financially ready.
Up front Costs
You will need to plan ahead to cover the many up-front costs of buying a home. Timing is important to help make sure things go smoothly.
* Mortgage Loan Insurance Premium. If yours is a high-ratio mortgage (less than 20% down payment), your lender may need mortgage loan insurance. Your lender may add the mortgage insurance premium to your mortgage or ask you to pay it in full upon closing.
* Appraisal Fee. Your mortgage lender may require that the property be appraised at your expense. An appraisal is an estimate of the value of the home. The cost is usually between $250 and $350 and must be paid when you contract for those services.
* Earnest Money. This is part of your down payment and must be paid when you make an Offer to Purchase. The cost varies depending on the area, but it may be up to 5% of the purchase price. If you wish to make a down payment of 5% and you give a deposit of 5%, then your down payment is considered to be made.
* Down Payment. With an FHA loan you can own your home with as little as 3.5% down payment. At least 20% of the purchase price is usually required for a conventional mortgage.
* Home Inspection Fee. We always recommend that you make a home inspection a condition of your Offer to Purchase. A home inspection is a report on the condition of the home and generally costs around $250 to 350, depending on the complexities of the inspection. For example, it may be more costly to inspect a large home or one where issues such as moisture problems, pyrite, radon gas or urea-formaldehyde are suspected.
* Prepaid Property Taxes and/or Utility Bills. To reimburse the vendor for prepaid costs such as property taxes, filling the oil tank and so on.
* Property Insurance. The mortgage lender requires this because the home is security for the mortgage. This insurance covers the cost of replacing your home and its contents. Property insurance must be in place on closing day.
* Water Tests. If the home has a well, you will want to have the quality of the water tested to ensure that the water supply is adequate and the water is potable. You can negotiate these costs with the vendor and list them in your Offer to Purchase.
* Septic tank. If the house has a septic tank, it should be checked to make sure it is in good working order. You can negotiate the cost with the vendor and list it in your Offer to Purchase.
* Title Insurance. Your lender or lawyer/notary may suggest title insurance to cover loss caused by defects of title to the property.
If you feel you cannot cover all of the up-front costs, you can ask the seller to contribute to these.
Besides up-front costs, there are other expenses to consider:
1. Appliances. Check to see what comes with the house, if anything.
2. Gardening equipment.
3. Window treatments. Check to see what comes with the house.
4. Decorating materials. Paint, wallpaper, flooring and tools for redecorating.
5. Hand tools. You will need some basic hand tools for your new home.
6. Moving Expenses.
7. Renovations or Repairs.
8. Service connection fees. Charged for utilities — telephone, gas, electricity, cable TV, satellite TV, Internet and so on. You may be asked to pay a deposit for some utilities.
9. Condominium Fees. You may have to make the initial payment for these monthly fees.