The Initial Costs of Buying a House: It’s Not Just the Down Payment

Personal Finance



When buying a house, many people just worry about having the down payment and getting approved for the mortgage.  However, that’s not all you have to worry about monetarily.  Although the down payment may be a significant part of your home purchase, there are many other costs associated with owning a house.  In this article, I will discuss the various costs of buying a home, with hope that you can reanalyze and take a second look at your finances and see if you really can afford buying a new home.

Closings Costs: Closing costs are all the fees and costs that are accrued in the purchase of the home.  Closing costs are things like appraisal fees, loan processing fees, credit report fee, loan origination fees, etc.  In a buyer’s market you can negotiate to have the seller pay for some or all of your closing costs.  But as the real estate market swing towards the sellers you will see less and less of it.  You will know approximately how much your closing costs will be when your lender provides a good faith estimate (GFE).  However, you should expect to pay from 2-4% of the price of the home upon closing to closing costs.

Fixing Up The Place: The older the house, the more it is going to cost to fix it up.  After buying the house, you will need to spend some time fixing it up.  If it is not a relatively new house, you can count on this cost being in the thousands the first year of purchase.  If you want to keep this cost low, buy a newer house or make sure you buy one without any infrastructural problems.  The biggest costs will come when fixing the infrastructure of a house.  Besides infrastructural damages, you may incur costs such as replace a broken doors, reapplying sealants to a deck, repainting worn out walls, buying a new sink, replacing blinds, replacing the fridge, and/or replacing the washer/dryer.

Furnishing Your Home: Furnishing your home is another big cost for new homeowners.  This cost can be kept low if you already have a lot of furniture that is suitable for your new living quarters.  However, as you move out of your rental and into your own home, you will want to replace your IKEA furniture and upgrade a little bit.  The good thing about furnishing your home is that you can find a lot of stores that will let you open an in-store account and give you 12-18 months of interest free purchases as long as you pay your purchase off before the promotional date expires.

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Taxes and Insurance: Don’t forget to account for these two.  Taxes and insurance alone can add another few hundred to your monthly mortgage payment.

Mortgage Insurance: If you have less than 20% down on a conventional loan, your mortgage lender will usually charge you private mortgage insurance for the first several years of the loan.  If you get an FHA loan, you will also have to pay mortgage insurance for the first several years of the loan.  Once you have made timely payments in the first several years of the loan, then you will cease paying mortgage insurance.  Until then, count on an extra hundred bucks or more added onto your mortgage payment.  Again, you can avoid paying mortgage insurance by putting the 20% down on your home.


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