The Cost of Buying A Home

The cost associated with buying a home. Sometimes unexpected and unplanned costs can wreak havoc on your happy plans when buying a home. Here are a few points of discussion for you to go over with your local Realtor and lender before you start shopping. As I’ve shared before, your first steps of homebuying involve setting up a financial plan for executing the purchase of the property. If you’re securing a mortgage to make the purchase and you don’t yet have a lender, your local Realtor is a great resource for a list of local lenders.

Some expenses and items to discuss with your lender are:    

• Down payment – a down payment on your loan can range from 0% to 25% and will depend on the type of loan product you are using. The down payment is a significant upfront cost but remember, the more you put down, the less you’re financing and can save on your monthly note. Talk with your lender to determine what loan type is best for you. *The earnest money you deposit with the contract is applied to your total costs and is due within 3 days of executing your contract, several weeks before your closing date. 
• Mortgage insurance – (PMI) Private Mortgage Insurance, is not insurance for you. It’s an insurance policy that you pay for, and it exists to protect the lender in the event you default on the loan. This type of insurance is normally required if you aren’t paying at least 20% of the purchase price as a down payment and is added to your monthly note and is calculated based on the current loan amount; so, this insurance premium will trend down as your principal goes down. This insurance will automatically be removed once your loan-to-value ratio hits 78% but there are various ways to get to that point even quicker, talk with your lender and set goals and a plan to get the PMI removed earlier. 
• Taxes and insurance – If you’re using an online mortgage calculator attached to figure your monthly payment, you may not be getting accurate data included in the numbers. It’s important to remember that tax data pulled into those apps from the appraisal district is based on the current owner’s exemption status and may not be the same for you and the value it’s currently figured on is subject to change. Property insurance on the island is vastly different than property insurance in other regions and it’s best to get details on pricing for all policies based on each property you’re pricing. These costs are added to your principal and interest on your monthly note. *Remember to ask your lender how much funds you’ll be required to keep in your escrow account as well. 
• HOA and maintenance fees – If the property has an HOA or a maintenance fee, find out the payment schedule of that fee (annual, monthly, etc.) and what it covers. These are usually paid directly to the property management company and/or HOA when they’re due. And very importantly, many collect multiple months of dues at closing for the reserve account of the entity. There will also be a fee to transfer the property to your name as well as a fee for the resale certificate that can both be negotiated at the time of contract. This all affects the amount of money you bring to the closing table. 
• Closing costs – Several of the costs paid at the closing table by the buyer are negotiable between the buyer and the seller and both sides end up paying costs at the table. Your lender may be charging fees that will be a part of your transaction including (loan app fee, loan origination fee, underwriting fees, and a buy-down of points). You may be paying your Realtor rep all or part of their compensation. You may also have fees added to your costs at the table for different property-based items such as a survey or appraisal. Title companies have fees too, the document preparations, any attorney’s fees for review of details, recording fees, etc. which are smaller fees that can add up to the bottom line.

There are other upfront costs to remember including the option fee, inspections, utility deposits, etc.

If you have questions or need resources to help you get started planning for your home purchase, contact your local Realtor to get you started.