The dream of buying your own house is a dream for countless people and is considered a landmark to one’s journey toward financial freedom. Home is a sense of identity, space, and a smart financial step. However, it is also one of the most significant investments.
If you’re wondering how much does it cost to buy a 3 bedroom house, then you are not alone. To help people understand the costs involved before investing in a new home, this guide will help you get started on preparing the savings account and create a monthly budget that can help you buy a new home.
Here is the breakdown of the costs of buying the house and maintaining the recurring expenses of the homeownership.
- The median cost to buy a home
- Fixed costs of buying a home
- Repeated cost of buying a home
- Preparing to buy a home
The Average Cost of Buying a Home
If you are thinking of buying a home mortgage, you need to consider the cost of the home. Calculate the median cost of buying a home in the region and then compare it with the price you are purchasing it.
Fixed Cost of Buying a Home
Beyond the house price, there are also some additional fixed costs that you might incur while buying a house. It is important to take note of those and make arrangements for such expenses well in advance. Some of the common upfront costs you might observe while you are ready to buy your own house.
- Down payment
- Closing cost
- Reserves
- Down payment – There’s a down payment that you need to consider. It is the part of the sale’s price that is expected to be paid upfront when you buy the home. As the general rule suggests, the more money you put down, the better it is.
- Closing cost – The closing cost is the additional fees required to seal the home deal. These costs can be negotiated in the offer, but it is often split between buyer and seller. The closing costs add up to nearly 2% to 5% of the house purchase price. The exact closing charge depends on the nature of the transaction. However, costs include the appraisal fee, inspection costs, search and insurance, and loan origination fee. It is best to ask the lender to work up the costs and find ways to settle them down to have a better idea.
- Reserves – This is the cost that most first-time buyers are usually unaware of. While this is not directly any expense of buying the home, it is the amount of money that you need to have in your bank after you make the payment for purchasing the home.
Typically when you buy a vacation home, they’ll ask you to have a minimum of two months of the reserve or the amount of mortgage payment left (according to the contract and situation).
Recurring Costs of Owning a Home
Once you are done securing the upfront or direct cost of purchasing the vacation home, it is time to consider the additional costs that you might incur regularly.
Primarily, you need to make sure that these costs are taken care of every month. You can also have an emergency fund set up for maintenance and other expenses. Some of these regular monthly costs may include –
- Mortgage payments
- Property taxes
- Mortgage insurance
- Homeowners insurance
- HOA fee
- Maintenance expenses
- Other facilities and upgrades
1. Mortgage payment
The mortgage payment is the biggest monthly expense you may encounter (If you have one). The amount you need to pay depends on the price of the house, mortgage rates, fees, and the size of the payment.
2. Property taxes
The property tax you are liable to pay depends on the state and the country your home is. It is usually paid annually and can be anywhere up to 2.5% of the home price.
The initial property taxes are collected at the closing of the sale. In the case of the mortgage, the company may collect tax monthly along with the mortgage bill.
3. Mortgage Insurance
If there is less than 20% of the down payment for a mortgage, the lenders usually charge insurance on the mortgage to protect themselves and minimize the risk of not being paid. Mortgage insurance doesn’t cover you but protects the lender from making any loss.
The insurance amount can be collected annually or monthly. It can cost up to 2% of the loan amount and is added to the monthly mortgage payment.
4. Homeowners insurance
Homeowners’ insurance can help you cover the damages that happen to the home. Some mortgage companies also require you to avail of the insurance policies to cover up any damages that shall be incurred.
5. HOA fees
If you plan to buy a house in an organized association, you’ll have to account for the additional fee on the mortgage payment. This fee is charged to keep up with the improvements in the common spaces and features. It includes maintenance for building-wise utilities.
The HOA fee varies – depending on where you live or how much the property is taken care of by the association and the amenities available.
6. Basic utilities
You might also have to provide essential utilities if you get the rent. You will be expected to pay for electricity, water, gas, and other essential services. It completely depends on the contract, location, and the usage of the property from time to time.
7. Maintenance of the home
Another cost that you might incur in your home is maintenance. The amount of work the home needs depends on individual property. Before buying a house, make sure that the maintenance cost is less than 1% of the home value.
Are You Ready To Buy Your House?
It is essential to determine your debt to income ratio (DTI), especially the front end DTI is an essential factor to know about.
There are a lot of financial and lifestyle considerations that you need to figure out while making calculations on whether or not you can afford a house.
You should also measure the local real estate market, the economic trends, and at the same time.
It would be best to consider your current needs and future aspirations.
