If you have found a mortgage offer that suits you best, think again! Very often, there are many more expenses when buying your home or condo beyond the mortgage payment that you become aware of only after signing the contract. Companies that buy houses regularly are aware of these costs. To ensure you know what to expect, read on to learn about all expenses when purchasing a home or condo.
Understanding the Buying Market
Before jumping into any decision-making process about buying a new home or a condo, research the current housing market. Explore the trends, average home prices, and ask about the extra expenses for your market. These can throw your budget off track. Let’s first see the upfront costs and then move on to the “not-obvious” ones.
Upfront Costs
Down Payment
The upfront costs begin with the down payment which is a calculated percentage of the whole price of the property that must be paid at once. It can be from 3% to 20% of the whole price. To calculate it you need to put into the equation the mortgage loan. If you deposit larger down payments, you will have lower monthly mortgage rates.
Closing Costs
Next, you must pay several fees to finalize the home-buying process. These fees are your closing costs. For example, closing costs when buying a condo can include:
- Application and credit fees
- Appraisal costs
- Home inspection fees
- Origination and underwriting fees
- Title insurance
- Assignment fees for investor purchases
- Transfer tax
Remember that the closing costs typically amount to 2% to 5% of the loan principal to know what to expect. However, they can vary by location and specific circumstances.
Reserves
Lenders will ask you to show them that you have some liquid cash to pay your mortgage during turbulent times. Put some money aside so you can be able to cover monthly mortgage payments even if you lose your job or something crazy like that. Save enough so you have to show that you have money to cover at least two months of mortgage payments. Look at it as a plan B to keep things running smoothly.
Moving Expenses
Moving your personal items costs money regardless of whether you do it alone or hire professional services. Again, these expenses can be from $100 to thousands of dollars, depending on the location and amount of stuff you have.
Ongoing Costs
Mortgage Payments
As the mortgage payments are paid each month no matter what for your home or condo. This is probably the most critical expense that can go on for many years. Mortgages consist of a lot of aspects including principal, interest, and in some cases, private mortgage insurance for those borrowers that have deposited less than 20% down payment.
Eve Alexander, Buyers Broker of Florida offers this when it comes to additional expenses when buying a house or condo:
“Owning a house is quite different from renting. When the stove goes out, water heater breaks, or a roof tile flies off, you are the one to fix it or at the very least, pay for it. This is important to understand as it goes far beyond simple mortgage and tax payments.
Setting aside a housing fund for situations and emergencies is a good idea. Calculate the amount of years left on appliances and features that will need replacing and set aside a certain amount each month so that when the time comes, you’ve saved specifically for that reason.”
Property Taxes
You also need to pay ongoing taxes which are calculated from the value of the property, assessed by professionals. As a homeowner, pay these taxes as needed. Sometimes, you can bake your property taxes into your monthly mortgage payment. This way, you don’t have to think about it.
Homeowners Association Fees
If your property of choice is part of the HOA (Homeowners Association) you will need to pay the association’s monthly fees. Or, you could make the payment once a year for all months. These fees will fill the HOA’s budget, which is used for the tenants’ needs like security, maintenance, and upkeep of shared facilities in the common area.
Insurance
Insuring your home or condo against unexpected events including natural disasters, theft, and vandalism is mandatory. In addition, if you pay less than 20% down payment, or your loan is conventional, you might be asked to pay for private mortgage insurance. You can also transfer your insurance policies between your old and new home.
Maintenance
Having a maintenance budget is also a smart idea, especially when urgent situations arise. For example, handling emergency repairs is crucial for the well-being of the tenants and the infrastructure of a rental unit. Plus, with a maintenance budget set aside, you will help in preserving the value and functionality of the property. Experts recommend you set aside approximately 1% of the home’s value annually for maintenance expenses.
Additional Expenses
Stamp Duty and Registration Fee
You can’t finish the property-buying process without paying for stamp duty and registration fees. The amount of money you’d need to pay is around 4% and 7% of the property’s value for stamp duty and 1% of the property’s value for registration fees to the government.
Goods and Services Tax (GST)
If the property you are buying is not completely built yet, you will need to pay Goods and Services Tax (GST), which largely depends on the type of property. Some properties have a 1% GST, while others might be even 5% GST.
Interior Costs
Once you have bought the property you would need to invest some money in its interior and exterior as you will probably want to customize it according to your lifestyle and preferences, A lot of people forget to think about how expensive furniture and appliances can be and that such interior change costs might be a significant amount of money. Plan ahead when it comes to starting renovating projects.
External Development Charges (EDC)
Property developers impose external development charges to cover infrastructure development costs like roads, street lights, and utilities. EDC can amount to up to 10% of the property’s base cost.