Hidden Home Buyer Costs
Today’s real estate market is a double-edged sword for home buyers. On the one hand, it is the perfect time to buy a home. Mortgage rates are still hovering just above historic lows, which allows you to save significant money on monthly payments. However, the inventory of available homes to buy is also at record lows, which gives sellers a huge advantage over buyers. This means that when you find a home you want to buy, you will most likely be in a bidding war. In this scenario, it is vital to act decisively and act quickly. You will need an accurate picture of what you are willing to spend and spend. This is key to making decisive decisions. Having a proper understanding of what you can spend requires having a realistic budget.
Uncovering the Hidden Costs of Home Buying
There are a lot of aspects to a home buying budget. An important thing to consider regarding home buying budgets is that it’s not necessarily a single budget. While some people can buy a house using cash entirely, most need a mortgage. This means that you need to budget for what it takes to get a mortgage. Then, you need to budget for continued mortgage payments. Developing a budget to account for your mortgage payments is the most straightforward part. Mortgage payments should account for no more than 30% of your monthly budget. To budget for these payments accurately, all you need to do is add up your monthly income and your monthly expenses. Then, add mortgage payments and make sure they are not more than one-third of your overall costs. The tricky part of making a home buying budget is all the other stuff to consider regarding the home purchase.
Understanding Down Payments and Mortgages
One of the most significant considerations you need to make when buying a home is budgeting for a down payment. Conventional wisdom is that you need to set aside 20% of a house’s value for a down payment. However, this is a myth.
Several loan programs allow you to put less than 20% down for a home loan. One of the methods is getting an FHA loan. FHA loans have backing from the federal government and allow people who have less than perfect for getting their home. In turn, this will enable you to be flexible with your budget and put a smaller down payment. If you qualify for an FHA loan, reduced costs range from 3.5% to 10%. The 10% applies to people with a credit score ranging from 500 and 579. The 3.5% is for credit scores that are at least 580.
Applicants who have military service may qualify for a VA loan. Also federally backed, these loans do not require a down payment. They also do not have any credit score requirements. If you qualify, these loans are outstanding for budgeting your new home.
Although all of these loans are government-backed, other options don’t break the bank. Working with a professional mortgage broker is key to getting access to many loan options. We work with several lenders and their requirements to get the best home for you. Working with hundreds of lenders will give you a better chance of finding the best home for your budget.
Understanding Closing Costs
It’s essential to know about other costs aside from a down payment that goes into budgeting. One of these costs is the closing cost. Closing a home is the last appointment where you officially buy the property. On this day, you will sign all of the paperwork, pay your down payment, and pay your closing cost. Closings costs are separate fees ranging from 2-5% of the total cost. They can include title insurance, origination fees, underwriting fees, document preparation fees, and other expenses.
To effectively budget for these costs, you must read the entirety of the closing agreement. Go through all of the paperwork before you go through with the deal to know how much money you need. Luckily, the team at People’s Choice Mortgage is here to walk you through the process. We can help you understand the closing costs and find a home that fits your budget.
Understanding and Preparing for Competing Home Buyers
This is a very competitive home market for home buyers. The chances are that when you find a home you like, there will be others trying to buy that home, as well. As a result, it is widespread that the first bid you put in on the house will not be the last. You will probably have to increase your offer to outbid other buyers. Make sure that your budget accounts for offering more than you anticipated. An excellent way to help work around this issue is to look at homes slightly below your budget. This allows a cushion for you to increase your offer and remain within your budget.
However, the housing market can be unpredictable. You may find yourself in a situation where you need to offer a bid higher than the home’s appraisal value. They will not give you a mortgage that exceeds the home’s appraisal value. In these scenarios, home buyers have to pay the difference between the appraisal value and the home offer in cash. You should prepare for that possibility now and add that to your budget. Consider this your war chest that you need to use to win a bidding war. This is cash on top of your down payment and top of any closing costs.
Final Thoughts
The cost of a home is not the full picture of how much it takes to buy a house. You need to account for down payments, monthly mortgage payments, closing costs, and more. The best way to budget for buying a home and making sure you have a full picture of what is needed is to work with professionals. The team at Peoples Choice Mortgage knows the real estate market inside and out. We encourage you to contact us. We can walk you through the home buying process step-by-step. Together we will get a full picture of the numbers and see what options are best for you.
