Visioning Homeownership – Part 4 of 4

Cost Related to Buying a House

There are several costs that are incurred when it comes to buying a house, including underwriting costs with the lender, transfer taxes, and title charges. Many of these costs are included in the mortgage as closing costs. Properties are most commonly purchased with a down payment and mortgage, but can also be purchased with cash.

Buying a house typically involves a mortgage, meaning you are borrowing money from a lending institution to help you purchase the property. You will usually be required to show that you have consistent income over 2 years, have a good credit score, and money saved for a down payment.

As a first-time home buyer, you have several options at your disposal to help you buy your first home. Down Payments can be as lower if you are using a Federal Housing Administration (FHA) First Time Home Buyer program versus a conventional loan that typically requires anywhere from 5-20% down. It is important to work with a knowledgeable lender to learn more about your financing options. Many lenders recommend you begin the process at least a year before you plan to purchase your home.

Mortgage Costs

If you have a mortgage, you will have a monthly payment based on the loan amount, term of loan, interest rate, taxes, and insurance known as the PITI (Principal, Interest, Taxes, Insurance) payment. The base of the payment will be your principal and interest payment to your lender. Depending on your down payment amount, you may also have private mortgage insurance (PMI).

In many cases, the lender will require you to set aside funds in an escrow account to pay taxes and insurance. These funds are often worked into your monthly payment to the lender – the lender will pay your taxes and insurance bills when they come due out of the escrow account.

Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met such as the fulfillment of a purchase agreement. There are two types of escrow accounts:

  • One escrow account is used during the home buying process to protect the buyer’s good faith deposit so the money goes to the right party according to the conditions of the sale.
  • The other escrow account is used throughout the life of your loan by the bank to hold a homeowner’s funds for taxes and insurance. The bank pays the tax and insurance expenses from the accrued funds in the escrow account on the borrower’s behalf.

Maintenance Costs

Properties don’t take care of themselves! The lawn needs to be mowed, heating systems need to be serviced, and eventually the roof will need to be replaced. Evaluating the age of the house as well as the usable life of elements of a house are important factors to consider along with understanding the cost of maintaining the home.

Generally, the older the house, the more likely it may require more maintenance or one bigger repair needed, such as a roof or furnace. If you are planning to live in the country, there may be a septic system or well to maintain or replace, whereas a property in the city utilizes city water and sewer.

As your home gets older, components often begin to wear out. Below are the estimated usable life of items within the house:

  • 5-10 years: dishwasher, sink, microwave
  • 10-15 years: hot water heater, garage door opener, and refrigerator.
  • 15+ years: roofing material, exterior decking, heating & air conditioning (HVAC) unit


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