The following are general guidelines intended to assist first-time home-buyers in familiarizing themselves with the expenses involved in purchasing and maintaining a home:
Generally, a buyer pays part of the total purchase price in the form of a downpayment. The amount of downpayment can vary greatly and is usually paid in three installments. The first, usually $1,000.00, accompanies the offer to purchase. The second is generally expected by the tenth day after your offer has been accepted. The first two installments usually add up to 10 percent of the home’s purchase price. The third installment is the remainder of the downpayment, and it is due at closing.
2. CLOSING COSTS
There are four major categories of closing costs. The first is, the costs involved in applying for and processing a mortgage application. The second set of costs are legal fees and title costs. Next, there are insurance costs, escrow and the per diem interest on your loan. Last, there are the costs associated with certifications and inspections. Depending on the number of points charged by the lender, closing costs may range from as little as 2% to as much as 6% of the purchase price.
3. MORTGAGE PAYMENTS
Your monthly mortgage finance payments will include principal, interest, and taxes. If your loan exceeds 80% of the purchase price, lenders will also require private mortgage insurance. In qualifying buyers for a loan, lenders use several general rules of thumb. First, the total purchase price should not exceed 2 ½ times your annual income. Some lenders use the mortgage amount (the total purchase price minus the downpayment), not the purchase price, for this calculation. Next, the lender looks at two other calculations:
(i) that the monthly payment for principal, interest, taxes, and insurance does not exceed 28% of your gross monthly income, and (ii) that your monthly payment for principal, interest, taxes, and insurance plus all your other monthly debts does not exceed 36% of your gross monthly income. The loan is based on the lower of the two figures.
There are many types of mortgage programs (such as FNMA, FHA, VA) as well as a variety of features. Shopping for the right loan can save you thousands of dollars over the life of your mortgage. Also, bear in mind that because tax rates differ from town to town, you may be able to afford more house in a town with a lower tax rate.
4. MAINTENANCE COSTS
Maintaining your new home will involve regular expenses, such as water, heat, electricity, and homeowners’ insurance, as well as other expenses resulting from normal wear and tear. Yearly maintenance costs often average 10% of the home’s purchase price, but vary greatly depending upon the age of the house, the family’s needs, and how capable the homeowner is to make repairs him/herself.
Choosing the right home for you and your family is an important milestone. Your Realtor will coordinate and oversee all aspects of your transaction, and will work to make sure all of your real estate needs are met!
Good luck and happy home ownership!!!