How to create a first owner’s budget
There are two types of costs associated with buying a home: upfront payments and ongoing payments. Let’s break them down.
Upfront costs to buy a house
The most obvious cost you will face is the price of the house itself. Few people can afford to buy real estate without taking out a mortgage. Here are the initial costs you will need to cover.
- Advance payment: Most people put at least 3% down, although it is possible to get a mortgage without a down payment. You can learn more about the different types of mortgages in our beginner’s guide to home loans.
- Closing costs: Depending on the lender and the home loan program, you may have to pay a number of fees. Some lenders allow you to factor closing costs into the loan balance. If you do, you’ll pay less out of pocket. But you will pay more interest during the life of the loan. The best lenders for first-time home buyers will walk you through the expected costs so you won’t be surprised when it comes time to close.
Besides the mortgage, you will also pay the usual expenses associated with any move.
- Moving expenses : You may need to rent a moving truck and fork out some cash to run your utilities.
- Make it yours: You are unlikely to buy a home that exactly matches your tastes. You might want to paint, install new window coverings, clean the house, buy furniture, or even take on a major renovation.
For most of us, a home is the biggest purchase we have to make. That’s why it makes sense to figure out all the costs up front and figure out how they will fit into your budget, whether you’re browsing starter homes in the suburbs or townhouses in a busy downtown area.
Your monthly mortgage payment will depend on the amount you borrow, the mortgage rates you qualify for, and the type of property you purchase. Use a mortgage calculator to get an idea of what your costs might look like.
Mortgage lenders sometimes call the key parts of your monthly payment PITI or PITIA. He understands:
- Mortgage Main plus Interest payment: Your credit score and the amount you borrow both influence the interest rate you qualify for. If you are able to increase your credit score before you apply, you could lower your mortgage payment.
- Property Taxes: The national average is around 1% of appraised value, but yours could be higher or lower than that.
- Owners Insurance: Expect to pay at least $ 100 to $ 150 per month.
- Owners Association fees: These vary enormously depending on where you live.
If you make a down payment of less than 20%, you will likely have to pay a mortgage insurance premium (sometimes called PMI or private mortgage insurance). As the owner, you will need to factor in additional expenses which we will cover below.