The Other Costs of Buying a Home
When purchasing a home, you'll need to assemble the down payment amount, which can range anywhere from 3% to 20% of the home's purchase price. But what other fees do you need to cover when buying a home?
Closing costs
Closing costs represent the biggest additional expense of buying a home. These are the fees that lenders and other third-party providers charge for originating your mortgage. These vary by lender, but you can expect to pay from 2% to 5% of your mortgage's principal balance in closing costs.
If you are taking out a $350,000 mortgage, you should expect to pay from $7,000 to $17,500 in closing costs. You may be able to roll these costs into your mortgage's principal balance instead of paying them up front. If you do, your mortgage payment may be higher than you anticipated.
Closing costs include a wide range of fees but can often include:
- Title and title search fees
- A fee that lenders charge to run your credit
- The cost of a home appraisal
- Up-front real estate taxes
- Attorney fees
- The cost of a home inspection
Reserve funds
Lenders want to make sure that you can make your mortgage payments even if you suffer a temporary financial setback such as a job loss or reduction in pay. Because of that, they'll typically require that you have enough savings — a reserve fund — after your down payment and closing costs to cover three or more months of mortgage payments.
If your monthly mortgage payment is $2,000, you'd usually need at least $6,000 in reserve funds after paying for closing costs and your down payment.
Moving costs
Moving can be expensive. Several factors impact the cost of a move, including whether you hire professional movers to pack and/or unpack, whether you're making a long-distance move, the time of year you move, if you need storage and how much your belongings weigh. But you can expect to pay around $1,000 for a local move to $5,000 and up for a cross-country relocation.
Private mortgage insurance
Private mortgage insurance (PMI) is a type of insurance that protects your lender if you stop making your mortgage payments. You'll have to pay these monthly premiums if you don't put down at least a 20% down payment on your home's purchase price. The cost of PMI ranges from 0.46% to 1.5% of your loan amount. For a $320,000 mortgage, PMI can range from$1,472 to $4,800 each year. If you pay $2,400 in PMI each year, you'll pay an extra $200 with each month's mortgage payment.
Property taxes and insurance
Owning a home means that you also pay for property taxes and homeowners insurance each year. The amount you pay depends on where you live and other factors such as the age of your home and its size. Most lenders require that you pay a portion of your taxes and insurance with each mortgage payment. If your property taxes are $4,000 annually and your homeowners insurance $2,000, you'd pay an extra $500 each month with your mortgage payment to cover these expenses.