Im nearly 25 now and for the past 6 years, I lived in an apartment – mainly because I was going through college (undergrad grad) and didnt have a fairly stable income source. Now, Im out in the real world so I decided to look into buying a house. I had the typical rationale – a house is just a little more than rent each month, so it doesnt make any sense to keep renting – turns out, thats probably not the right rationale for buying a house. The problem is that your monthly payment may be somewhere close to your rent (probably within a few hundred maybe unless you have a really great deal on the apartment), but there are tons of other costs you should know about. I thought it might be helpful for those of you out there considering making the jump to a house for the first time to see some sample expenses. Ill give you a summary of what it cost me to get started. Ill break it up into before, at, and after closing. If you dont know what closing is, its basically when you sit down with the seller and official sign the paper work to purchase the house (you will have made an offer that they accepted and then closing usually happens 30-60 days after that).
For background purposes, my house was $130,000 – so take that into account with the numbers below. Dont plan on your costs being the same as mine, or even close for that matter – maybe they will be, but unless you have very similar loan terms, dont expect it. I did 5% down in whats called an 80/15/51st mortgage for 80% of purchase price, 15% second mortgage with a higher interested rate – if you dont do this and you dont put down 20% youre probably going to pay private mortgage insurance, or PMI, which will change your numbers too.
Home Inspection $325
Earnest Money $1000 (see note below)
Credit Report Fee $20
Processing Fee $515
Loan Origination Fee $1000 (usually between 0% to 1% of the loan value)
Flood Certification Fee $20
Tax Service Fee $85
Prepay Interest $320
Prepay Hazard Insurance $450
Escrow Hazard Insurance $115
Escrow City County Property Taxes $1300
Settlement / Closing Fee $115
Document Prep Fee $85
Title Insurance $700
Courier Service Fee $25
Government Recording Fees $200
Government Transfer Tax $500
Misc Cost for Second Mortgage $350
Down Payment $6500
Monthly 1st 2nd Mortgage Payments w/ Tax Insurance $1000
Total: $1000 (ongoing)
Note on Earnest Money: That is basically a check you send to the seller to prove youre serious about your offer on the house – you choose the amount you send, but it sounds like $500-$1000 was the common range in my house price range. The money is applied to your closing costs – so its not an additional amount you have to spend, but I included it here because it will be drawn out of your checking account before closing so just be aware that youll have to have that much more in your account when you start.
Youll also notice I included my down payment in the closing costs – thats when youll make that payment, but you can choose how much to put down. Usually your lender will have certain options for you to choose from – sometimes you can even do no down payment. Theres also something called points you can put on your loan where you essentially pay a percentage of the loan value to the lender and they give you a lower interest rate – again, it depends on the lender and whether you want to do it or not so check out your options.
One more thing to keep in mind is this – your house may need painting (inside or outside), things (who knows what) might need fixing, you may need equipment for your lawn or tools to do handyman type work, you might even need new kitchen equipmentthe list just goes on of things you may need or want once you actually own the house. In my case, I needed a real set of pots pans, a refrigerator, lawn mowers other yard equipment, and interior paint supplies. All of that ran me about $2000 more during the first month I was here (and I got the riding lawn mower for free).
I hope all of this information has shed some light on the subject of buying a house – I know I had a hard time finding actual numbers when I was trying to plan my purchase so I hope this helps those of you that are thinking about it. Even though it cost quite a bit, I still wouldnt have it any other way – sure, you get to build up equity (but your payments are mostly interest in the beginning anyway), but the big thing is that its a home I can call my own, Ive got tons more space than I had before, and its just fun being here. So my advice to you is to buy your own home if you can afford it, but be realistic about the costs involved during the early stages.