Buying a home? Don’t focus on sale price alone
The Associated Press
NEW YORK (AP) – Prospective home buyers tend to focus on a single number: the listed sale price. It’s why they’re often blindsided by the array of costs that come with buying a home.
New mortgage fees, moving costs and higher utility bills are just some expenses that can make homeownership far pricier than expected.
Still, low mortgage rates of around 5 percent and tax credits helped new home sales surge in March, recovering from record lows the previous month. It was the strongest performance since last July and the biggest monthly increase in 47 years.
So if you’re thinking of making the leap, here are some big and small costs to keep in mind.
It’s not a clear-cut cost, but you’ll want to pay off any debt you have before starting the home buying process. This will help give your credit score some more muscle.
This will better your chances of getting a lower interest rate, which in turn would dramatically reduce what you pay over the life of a loan.
To take a relatively drastic example, a 100-point difference in your score could mean an extra $25,000 in interest payments over the life of a 30-year mortgage, according to FICO, which develops the most widely used scores. That’s assuming the loan is for $300,000.
To get started, you’re entitled to a free annual credit report from each of the three major credit bureaus, visit http://www.annualcreditreport.com. A FICO score costs $15.95 at http://www.myFICO.com.
New fees introduced during the housing market meltdown by Fannie Mae and Freddie Mac will likely push the price of a mortgage higher for many people.
The fees are based on credit profiles, the amount of the loan in relation to property value, and the type of home you’re buying. All told, such fees could total as much as 3 percent of the loan amount, said Marc Savitt, a past president of the National Association of Mortgage Brokers.
In that case, you’d be paying another $3,000 for a $100,000 mortgage.
If your down payment is less than 20 percent, you generally also will be required to buy mortgage insurance. That might come to about 2.5 percent of the loan upfront, as well as an additional monthly fee. So for a $300,000 mortgage, you might pay $7,500 upfront and about $100 extra each month until you reach 20 percent equity in your home.
In addition to the down payment, you’ll need a significant amount of money upfront to cover closing costs. This covers items such as administrative expenses, titles searches, appraisals and property taxes. The mortgage insurance and fees cited above should be included too.
All told, closing costs can add up to around 4 percent to 6 percent of your home’s sale price, said Greg Herb, a regional vice president for the National Association of Realtors based in Gilbertsville, Pa.
For a $300,000 home, that could mean closing costs of $12,000 to $18,000.
What’s included in your closing costs and how much you’ll pay will vary depending on your loan and where you live. For example, initial homeowner association dues and inspections might be included in some cases.
By law, home buyers must be given a document called a Good Faith Estimate that breaks down such costs when they apply for a mortgage.
A new regulation that went into effect this year expands the form from one page to three, and requires lenders to give more accurate estimates of closing costs.
The home you’re buying may be considerably more spacious than your current place. In which case, you’ll likely need to buy more furniture. You may even want to replace what you already have if you’re still hanging onto a mishmash of decor from your post-college years.
Depending on your tastes and how much you need to buy, this could easily cost a several thousand dollars. Basic sofas at Crate & Barrel, for instance, range from about $1,000 to $2,000.
If the home you’re buying isn’t new, you may also need renovations or repairs to an old bathroom or kitchen. And if you have a lot of stuff to move, consider whether you’d need to hire movers on the big day. In the latter case, even a relatively basic move can easily cost several hundred dollars.
Most people don’t realize all the maintenance costs that come with being a homeowner. As a renter, you might not even deal with the water, heating or electricity bills. Even if you do, utility bills will likely be far higher for your new home, particularly if there’s a pool or other special feature.
Other maintenance costs could include lawn care and the occasional paint job. And finally, if something breaks down, there won’t be a landlord to call. As the owner, you’ll be the only one on the hook.
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