The Complete Cost of a Mortgage
You’ve found a home that you love that’s within your budget – so, what’s next? When it comes to the total cost of your new home, your monthly mortgage isn’t the only expense you need to consider. It’s important to factor in additional expenses like closing costs, insurance and taxes before committing to a mortgage. There are upfront costs and ongoing costs, and typically the more you pay upfront, the less you’ll have to borrow.
- Down payment - The down payment is a part of the home’s purchase price you pay upfront, rather than financing it through a mortgage. The more you pay upfront, the less you’ll owe over time – which means the less interest you’ll pay. The required down payment depends on the type of mortgage you get. For example, on a conventional loan, if you can afford a 20% or larger down payment, you can avoid the costs of private mortgage insurance (PMI).
- Closing costs - To close on your home loan and get the keys to the property, you’ll need to pay associated closing costs. These costs include several different fees that your mortgage loan officer or closing attorney will go over with you in detail.
- Costs to move - When working through your budget, don’t forget to factor in moving costs. Whether you do it yourself or hire professionals, moving your things from one home to another typically comes with a price. According to HomeAdvisor, hiring a pro can cost anywhere between $900 and $2,500.
- Mortgage payments - Your monthly mortgage payment will likely be your biggest recurring home expense. Because it’s such a large cost, it’s worth exploring ways to reduce it. Making a bigger down payment can help you pay less on your loan, because you’ll owe less on the principal balance. Choosing a shorter term may mean a higher monthly payment, but the interest accrued over a 15-year loan period is significantly less than interest accrued over a 30-year term. Making extra payments is also a good way to reduce the costs of your mortgage. If you’re able, you can make extra principal payments each month to speed up the repayment timeframe.
- Property taxes - Property taxes are typically included in your monthly mortgage payment, but they are separate from the interest and principal. Property taxes are based on the assessed value of the property (not necessarily what it would sell for today) and tax rate for your municipality. These taxes pay for public schools, police and fire, highway maintenance and other government services.
- HOA fees - If you’re buying a home in a community overseen by a homeowners association (HOA), you’ll likely be required to pay a monthly fee. These funds are determined by the association and go toward things like security, a community pool or gym, landscaping and maintenance.
- Insurance - Homeowners insurance is another cost you may pay monthly or annually. This is required by your mortgage lender, and you’ll need to provide proof of current insurance if you pay that separately. Homeowners insurance protects against damage from unexpected events such as fire, theft or vandalism. Areas that are at a higher risk for things like hurricanes and tornadoes may incur higher costs for homeowners insurance or require a separate policy for flood insurance.
If you have a conventional loan and put less than 20% down on your home, private mortgage insurance (PMI) is generally required. PMI is usually 0.5-2% of the loan amount and can be paid as a single premium upfront or as a monthly amount. You’re required to pay PMI until your principal balance is 78% or less of the original value of your home, which can considerably increase your mortgage payment, but it isn’t necessarily permanent. Typically, as you pay down your mortgage and build equity in your home, it’s possible to get rid of PMI.
- Maintenance and Utilities - Home maintenance is something you can almost always expect to need intermittently. It may not be an every-month requirement, but you should keep extra funds on hand in case any maintenance needs arise. Many experts recommend budgeting 1% of your home’s value for home maintenance each year. Keeping an emergency fund to address urgent, unexpected concerns throughout the year is important as well.
Don’t forget to budget for basic utilities, like water, sewer, gas, electricity and trash. Generally, the larger the property, the more utilities will cost.
The cost of buying and owning a home can add up quickly. Make sure to consider and budget for all these costs to get the best idea of what you’ll pay for your home. Your real estate agent can help guide you through the process and all the associated costs, as well as working with a trusted loan officer. Atlantic Union Bank has a team of dedicated and knowledgeable Mortgage Loan Officers ready to help you with all your homebuying needs.
Sources: Banzai, Bankrate, HomeAdvisor