As of February 2017, the average sales price of a new in the US is roughly $390,000 dollars according the US Census Bureau, and across most major metropolitan areas these prices have only risen over the past couple of years anywhere from 6 to 10%. In this sort of climate the decision to purchase a new property can affect your finances for decades to come, no matter your circumstances.
So before you jump into the homeowner pool, or pull the trigger on a new rental property make sure you consider all of the costs you’ll need to budget for.
A mortgage can come in many types. From a basic repayment mortgage where you reply interest and principle usually on a monthly basis, to an interest only mortgage where you only pay interest on the principle each month and pay your principle in one big chunk at the end of your mortgage term, with many other options in between. If you’re purchasing rental property you will usually get a “Buy to let” mortgages, which is not generally available to first-time buyers. Understanding the type of mortgage, the length, the interest due and the schedule for payments is vital.
Your down payment will normally be submitted alongside your offer on the house and can make up anywhere from 3.5 to 20% of your property value. The bigger your down payment the better and more flexible the terms for your mortgage will likely be. For rental properties you will normally be looking at a down payment of at least 20% or upwards with a higher interest rate as well.
In order to obtain a mortgage homeowner’s insurance is a must, this covers the property and contents of your house. This sum can vary depending on the many factors such as how your property is constructed, your credit score, the age of the property and its utilities and the potential dangers to your home posed by its location.
If you paid less that 20% as a down payment for your home you’ll probably also be required to get Private Mortgage Insurance to protect your lender against the threat of default. You make also need Title insurance that protects your house from ownership disputes.
Property taxes are charged by local governments to pay for public maintenance of the area surrounding your property. Before purchasing a property contact your municipalities to make sure you’re aware of the rates in the new neighborhood. Remember that these rates are subject to change and could go up in time adding to your property costs.
Before buying any property you want to have a home inspector survey the site to give you an estimate on any remodeling or repairs necessary. Additionally your mortgage company will usually appoint an appraiser to survey the property before granting any loan. Both of these fees will come out of your own pocket.
Buying your own property entails a surprising amount of upkeep. From fixing rewiring to plumbing, to painting to repairs of the fixtures and fittings or replacing areas of your house outright this can be an expensive proposition. A good money management rule for homeowners is to keep 1% of your home’s purchase price ready each year for necessary maintenance. If you’ve bought with a view to rent, then you should look to hold at least 10-12 months of rental fees handy per property to cover any necessary maintenance your tenants require.