A mortgage is the most expensive loan that you’ll ever take on. It’s important to know how much you can afford to pay for your monthly mortgage, and how much it will cost for closing costs and other fees.
Following these steps to buy a house and what costs you can expect will help you better navigate through the home buying process and have a better understanding on what you should be spending.
Down Payment
The mortgage down payment is the portion of the purchase price that you are required to pay upfront. The amount that you are required to put down varies from person to person, but it’s typically within the range of 3% to 20%.
Save up anywhere from 20% to more than 50% of the cost of the home you want to buy. The more money you can put down on your mortgage, the less risk you take on in terms of higher interest rates.
Mortgage
The mortgage down payment is one of the most important factors in determining your monthly payments for a specific home purchase. The more money you can put down on your mortgage, the lower your monthly payments will be since it gives you a lower interest rate.
A mortgage payment is the amount of money you pay every month on your mortgage. Your mortgage payment includes principal, interest, and occasionally additional fees depending on your mortgage.
The best thing you can do as a potential new home owner is to become pre-approved for a mortgage loan to best determine what you can afford.
Closing Costs
The traditional closing costs for a home can be broken down into two types: hard costs and soft costs. Hard costs are the expenses that the buyer will pay upfront, such as the down payment and any earnest money deposits. Soft costs are the fees that the borrower pays after closing, such as title insurance and recording fees.
The total amount varies depending on your state and where you purchase your home. A good rule of thumb is to plan to spend about 3% of the loan amount on closing expenses for a home purchase, not including mortgage interest.
Taxes & Insurance
This amount will depend on where you live and the type of home you buy. Factors such as locations, condition of the home, and potential natural disasters that your home may face are involved with determining these costs.
Speaking with your real estate agent and mortgage broker will help you better understand where these costs may lie.
Purchasing a Home
We can’t put a price tag on the happiness and satisfaction that owning your own home brings you. But if you need to know how much it costs to buy a home, then understanding how these factors contribute to its price will be helpful in determining what type of home you can afford.
