The first step toward buying a home is to get pre-qualified with a mortgage lender. They’ll run your information, including your income, debt, credit score, and other applicable factors. When everything is approved, they’ll assign a maximum mortgage amount and a required down payment percentage.
At that point, you’ll start to look for houses within your price range. As you search, remember that the maximum mortgage amount won’t go as far as you might assume. When you buy a house, plenty of hidden costs are tied to the asking price. If you purchase a home that’s listed right at your maximum mortgage approval, you may not have enough funds to cover everything.
It’s wise to go enter a home sale with your eyes wide open. You should be prepared for extra costs with any home purchase.
Property taxes are charged by local governments to cover services like schools, parks, sidewalks, and other public needs. In Texas, the property tax is approximately 1.81 percent of your home’s value, charged annually. This is non-negotiable and is usually described in the listing information.
Your first property tax payment will be expected up front. After that, you can typically divide it into 12 months and either include it in your mortgage payment or pay it in a lump sum each year.
- Closing Costs
Closing costs are among the biggest extra expenses in a home purchase. They include all costs of preparing the home for an ownership transfer, including attorney, preparation, loan origination, and other random fees.
These costs can be anywhere from two to five percent of your home’s purchase price. To put that in perspective, if you’re purchasing a $200,000 property, your closing costs can run as high as $10,000.
If you ask, your lender may be able to negotiate these costs on your behalf. You might also persuade the seller to pay for closing costs as part of the purchase agreement.
In most cases, the lender will include closing costs in your mortgage as long as the total meets the original parameters of the lending agreement. If your mortgage won’t cover these costs, you’ll need the money up front.
- Costs of Homeownership
Home ownership entails dozens of miscellaneous costs. You might have homeowner’s association fees, higher-than-anticipated utility expenses, home security system installation, and routine and surprise maintenance.
You can’t simply call the landlord when something breaks anymore. You’re taking on a huge financial and emotional responsibility by purchasing a home, and you must understand and be prepared for this undertaking.
Most mortgage lenders will not release the funds to you unless they’re sure the home will be a good investment. They’ll have an appraiser assess the property value, to make certain the asking price approximates the value of the home.
The typical appraisal fee runs anywhere from $250 to $600, depending on your state and the size of the home. The lender will order the appraisal and charge you for it. Usually, that payment is expected up front.
A home inspection will also cost between $200 and $600 up front. This is optional, but highly recommended, before you enter escrow.
A home inspection is different from an appraisal. Rather than looking at the value-adding features of the house, an inspector will check for structural, mechanical, or other hidden issues you might not perceive.
The inspector examines the foundation, siding, roof, heating and cooling, windows, and other facets of the home to make sure you don’t buy a dud. Based on the report, you might choose to back out of the purchase or re-open negotiations so you’re not made solely responsible for repair costs or sudden depreciation.
- Moving Costs
Don’t forget the major expense of packing, storing, and transporting your possessions to the new place. You could easily spend more than $1,000 on a move within the same city, but the cost will be higher when you move across the country.
Moving truck rentals are higher when you drop them off in a different location, and the cost of gas will be significant. Be ready for this up-front cost before you take the plunge.
- Maintenance and Renovations
You’re responsible for mowing the lawn, fixing plumbing issues, paying to repair damage, or updating the property. If you purchase a property with known structural issues, your money will pay for those repairs.
You never know when such costs may arise, so it’s worthwhile to build a savings account so you’ll have money on hand when something needs fixing. Also, many homeowners want (or need) to renovate the property. You can add value to your home by doing so, but it comes at a significant initial cost.
You might arrange a loan to pay for such updates, but you’ll want to make sure any projects have a sufficient return on investment to make it worth incurring more debt.
You should have several types of both mandatory and optional insurance policies for a home purchase.
Private Mortgage Insurance (PMI): If you made a down payment of less than 20 percent, you’ll be required to pay for PMI. This protects your lender in case you default. Fees vary according to your location and the mortgage amount, but they average between 0.3 and 1.2 percent.
Title Insurance: Your mortgage lender might also ask you to obtain title insurance, which protects you and the lender in case anyone else tries to lay claim on the title. This is a one-time premium that averages at about $1,000.
Homeowner’s Insurance: All homes with a mortgage are required to carry a homeowner’s insurance policy. This covers the property and its contents in the event of a natural disaster.
The cost will vary, depending on the size of your house, your location, and specific coverage tenets of your choosing. If you live in an area where tornados, hurricanes, and earthquakes are common, your rates will be higher than those that are less risky.
Houston and the surrounding area often see high insurance premiums because they’re subject to hurricanes, tornadoes, and hailstorms. Factor in your monthly insurance payment before making the purchase.
- Appliances and Furnishings
Sometimes, the sellers will include appliances in the purchase of your home, but most take them when they move. A refrigerator, dishwasher, stove, microwave, washer, and dryer can cost thousands to replace.
If you’re not sure you can afford the cost, try to negotiate the existing appliances into the purchase of the home. There will also be certain furnishings to buy as well.
You might need rugs, carpet, window treatments, shower curtains, or new paint. Unique furnishing situations might also arise when you buy a house with a different layout from that of your previous place. Try to be aware of these when you move.
- Realtor’s Fees
The typical realtor takes a commission of six percent from the price of the home. It’s split between the buyer and seller, so each contributes three percent. If you’re buying and selling a house, you’ll owe three percent twice (or six percent total).
You can often save on realtors fees by engaging a flat-rate realty company, such as Green Residential. We charge a flat-rate fee rather than taking a percentage, which means you can potentially save thousands on your home purchase without sacrificing the quality of your agent.
By choosing Green Residential, you’ll have a knowledgeable, experienced staff of realtors who know the Houston metropolitan area better than anyone. We want to help make your first home purchase smooth, with the lowest possible amount of fees.
For more information about our services, contact us today!