More Than a Price Tag: How to Calculate the Overall Cost of Buying a Home

If only buying a home was as simple as buying a loaf of bread at the grocery store. Life sure would be easier. Imagine the price that you see on a home actually being the price you end up paying. As you likely know by now, that simply is not the case. Depending on where you live and how you choose to pay for the home of your dreams, there can be all kinds of extra expenses that you may not have been aware of. Here are some factors to consider when calculating the overall cost of buying a home.

Inspection Costs

Assuming the seller has accepted your offer to buy their home at a certain price, you will want to have a home inspection. This will cost you money, and it will need to be done before you can get final approval for the mortgage should you choose to go that route. Some mortgage types, such as VA, will require a home inspection and may even dictate the firm that you are to use depending on the area of the country you are in.

Survey Costs

Imagine buying a house and discovering that your deck is half on your neighbor’s property! I recently saw exactly that happen. That is why you need to have a survey done before closing on your house. Fortunately, in this case the title company was able to resolve the issue. It turned out that two sales previous the small additional slice of land was accidentally dropped from the deed so no one was paying taxes on it and had the error not been discovered in time, the county could have foreclosed on it and created problems for the owner.

Title Company

The title company handles all the paperwork and holds money in escrow to protect both the buyer and seller. Their job is to make sure the transfer of title goes smoothly. They also offer “Title Insurance” so if problems arise with the ownership (Title) you are covered.

Closing Costs

No matter if you pay cash or choose to finance a portion of the home, there will inevitably be some closing costs that you will need to pay prior to the home officially becoming yours. Many of these can be negotiated in the contract, such as buyer and seller splitting the costs 50/50, but you will nonetheless want to account for them. These fees are in addition to the selling price of the home, and include such items as title fees, document and courier costs, filing fees, appraiser fees and any other miscellaneous fees.

Interest Expense

Whether you get a mortgage through an agency, such as the Premium Mortgage Corp, or through a traditional bank, you will need to account for mortgage interest in the final price of the home. This will not actually be realized for 15, 20, or 30 years depending on the term of the loan that you get. Because of this, many refer to it as a hidden expense. You tend to forget about this, but it nonetheless is the biggest expense you will incur. In many cases, the interest you pay may actually exceed the selling price of the home. One way to reduce the interest expense is by paying “points” up front. One “point” is equivalent to 1% of the mortgage amount so you can exchange long-term costs for upfront costs. So for every $100,000 one “point” will cost you $1000. and this might reduce your mortgage interest rate 1/4%. So you will need to calculate whether the savings are worth the expense.

Loan Origination Fee

In addition to other expenses if you get a mortgage the mortgage company will often charge you a “Loan Origination Fee” to cover their expenses of setting up your paper work.

Insurance

All mortgage issuers want to be sure that they aren’t left “holding the bag” if your house burns down and you just “walk away” so they require that you have Home Owners insurance. Another form of insurance is Mortgage Protection Insurance. On the other hand, private mortgage insurance protects the lender against missed payments or outright default.

Moving Costs

Don’t forget that you actually need to move into the home. You will be coming from somewhere, and that will be an added expense. Depending on how far away you live, this could be a major or minor expense that adds to the overall cost of buying a home.

These are some factors that impact the cost of your new home. Make sure to calculate them as you consider what you can afford. You may be able to “roll” some of these fees into the cost of your mortgage but if you do you will be paying serious interest on them over a long period of time. Remember, you want to enjoy your new home and not feel financially trapped by it!

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