Budgeting for buying a home can be difficult enough when you're just weighing mortgage options and a purchase price. But there are many other factors that go into the cost of home ownership. Some of them are one-time expenses that you'll pay during the home buying process, while others will be recurring costs for as long as you own the home. Your lender and realtor may only tell you about the PITI (principle and interest payment), then your first mortgage bill comes in and you get sticker shock!
There are several smaller fees that add up to a rather large sum when you're going through the closing process-loan fees, attorney fees, underwriting fees, and more. They typically add up to 2-5% of the purchase price. For a $300,000 home-roughly the national median-that's in the neighborhood of $10,000, so be sure to budget for it.
Your lender will require an appraisal, and the appraisal fee (a few hundred dollars) comes out of your pocket. If you are a veteran, and the lender doesn't follow all of the guidelines, they may charge you for this. Average appraisal in the South Puget Sound runs around $400-$800
The few hundred dollars you'll pay for a home inspection is money well spent, but it's something you have to keep in mind during the purchase process. You'll have the peace of mind of knowing the house is free from any major issues, and you're making a smart, solid investment. A good inspector is going to include a pest inspection otherwise you may get hit with a separate fee for that. The average home inspection will cost you between $450-$600
Although homeowners insurance isn't legally required, it'll almost certainly be required by your lender. Further insurance, such as flood insurance, may also be required (depending on your location). The average home owners policy will run you around $500-$700 (so about $50/month on your monthly payment)
Home Owners Association
If you're living in a property or community with shared spaces, you'll almost certainly have an HOA fee. This pays for things like trash removal, maintenance of common areas, and for recreational facilities like gyms and swimming pools. The costs for these can be all over the map and in some areas here in Washington you may have more than one HOA. So check carefully.
Washington State has a tax that hits you at the time of purchase and at the time of sale. Don't forget to account for all of those pesky property taxes that will go up every year. These can vary greatly by county. But plan on at least a couple of thousand per year.
Private Mortgage Insurance
If you are not a veteran and you are not putting up at least a 20% down payment, you are going to get hit with Private Mortgage Insurance (PMI). This is an insurance for the lender and not for you. Assuring them that they will get most of their money back should you default. With the new Fannie and Freddie guidelines you could be stuck paying this for the life of the loan. That's an additional couple of hundred dollars per month.
Wrap it Up!
This is the one of the biggest investments you will make. Please be sure to budget wisely so that you don't end up "house poor". Remember, most people only live in their homes for around 5-7 years now. So have a plan that your purchase could be a part of a long term investment portfolio. Your first couple of homes may not be your dream home, but they could be steps on the ladder to it and a great retirement. So, keep your costs down, remember that the PITI is not the only thing you will be paying every month, it could look something like this;
PITI = $900 (seems affordable)
PMI = $200
HOA = $75
Taxes = $290
Insurance = $50
Total Monthly Mortgage and Escrow Payment: $1515.00 - Is it still affordable?