Not-So-Common Costs to Consider When Budgeting for a New Home Purchase
8.21.2023 | Category: Article
Buying a new home is an exciting journey that comes with a mix of emotions, ranging from joy to a hint of trepidation. As you embark on this adventure, it’s important to be mindful of the expenses involved beyond the down payment and mortgage.
While common costs like property taxes, insurance, and maintenance are often on every homebuyer's radar, there are some not-so-common costs that can catch you off guard if not adequately prepared. Learn how some of them can be incorporated into your homebuyers' loan when you work with the right lender.
Most homebuyers are aware of closing costs, but they are still worth mentioning as they are often underestimated. These costs encompass a range of fees associated with the home purchase, such as appraisal fees, title insurance, attorney fees, and loan origination charges. On average, closing costs can amount to 2% to 5% of the home's purchase price. Some lenders offer the option to roll these costs into the loan, helping you minimize the upfront financial burden.
Before finalizing your purchase, it's recommended that homebuyers conduct a professional home inspection to identify any potential issues with the property. While not always mandatory, a home inspection can save you from costly surprises down the road. The inspection cost can vary depending on the size and location of the property, but it typically ranges from a few hundred to a thousand dollars.
A home warranty can provide peace of mind by covering major systems and appliances in your new home. Though not commonly included in the purchase price, some sellers offer to pay for a one-year home warranty, which you can negotiate during the home-buying process.
Homeowners Association (HOA) Fees
If you are considering buying a property in a managed community or a condominium, you may be subject to HOA fees. These fees are collected by the homeowners association to maintain common areas, amenities, and community services. Ensure you understand the HOA fees and what they cover before making your decision.
Private Mortgage Insurance (PMI)
If your down payment is less than 20% of the home's purchase price, you may be required to pay PMI. PMI costs typically range from 0.3% to 1.5% of the original loan amount and are usually added to your monthly mortgage payments.
Home Renovations or Repairs
While you may have fallen in love with a property, there might be some features that don't align with your preferences. Factor in potential renovation or repair costs to tailor the home to your liking. From small cosmetic changes to more significant or structural updates, having a financial cushion for renovations can be beneficial.
Rolling Some Costs into the Homebuyers' Loan
In some cases, it's possible to include certain costs into your homebuyers' loan, which can help ease the immediate financial burden. Here are a few expenses that can potentially be rolled into the loan:
Upfront Mortgage Insurance Premium (UFMIP)
For FHA loans, an upfront mortgage insurance premium is charged. This cost, typically 1.75% of the loan amount, can be rolled into the loan, reducing the immediate out-of-pocket expense.
VA Funding Fee
For veterans using VA loans, a funding fee is required. Like the UFMIP, this fee can also be rolled into the loan amount.
If the home appraisal identifies necessary repairs or improvements, the lender may set up a repair escrow. The cost of these repairs can be included in the loan amount, and the funds will be held in escrow until the work is completed.
At Mutual of Omaha Mortgage, we understand that the journey to homeownership can be both exciting and overwhelming. As your trusted lending partner in this process, we want to ensure that you have a clear understanding of the common and not-so-common costs associated with buying a new home. Our friendly and knowledgeable team is here to assist you every step of the way, providing expert guidance to help you make well-informed decisions.
If you have any questions or need more information about financing your dream home, don't hesitate to contact Mutual of Omaha Mortgage today. Let's work together to turn your homeownership dreams into reality!