A 2018 study by the Urban Institute’s Housing Finance Policy Center shows that the majority of millennial homeowners have mortgage regrets. Topping the causes of remorse is getting caught off guard by hidden costs.
To be fair to law-abiding lenders of home loans in Utah County and the rest of the country, they legally provide a breakdown of fees when making an offer. Much of the homeowner regret, however, stems from failing to understand the entire economics of buying a house.
As a first-time property buyer, you might be excused for not being familiar to the costs associated with home ownership. After all, you have probably rented most of your adult life. To spare you the fate of many imprudent millennials, here are the expenses you ought to know before making a house purchase.
Down Payment
You probably know this already, but its value is not always appreciated. The down payment is the portion of the bill you need to cover up front to seal the deal with the seller.
Generally, it is proof you can afford to buy in the first place. Moreover, the size of the down payment you can pay is equal to your risk as a borrower. The smaller it is, the riskier of a customer you are to a lender.
If you can’t pay at least 20% of the property price, you will need to pay for Private Mortgage Insurance (PMI) to make up for the risk you bring to the table. You will have to shoulder this expense until your loan-to-value ratio reaches 80%.
PITI
This acronym stands for principal, interest, tax, and insurance, charges that represent your monthly mortgage payment. Initially, the interest will represent the most significant portion of your payment, but the principal will take over it halfway through the term of your loan. In other words, most of your early fees go toward the interest, so it can take time before you can pay off your debt.
Furthermore, the tax portion of your monthly mortgage payment goes to the coffers of the local government. The tax rate and the assessed value of a house in the area are the bases for the property taxes. The insurance portion consists of homeowner’s insurance and PMI, if applicable.
Closing Costs
These fees go all of the professionals who will work to process to your mortgage. A typical real estate transaction is a complicated one, incurring different charges from beginning to end. The list of closing costs can be extensive, but, as mentioned, the fees will be detailed in a good faith estimate you will receive from a lender.
Although they are called as such, closing costs do not always have to be paid at closing. Some lenders can provide an option to roll them over into the loan amount to minimize out-of-pocket expenses. No-cost loans are by no means free of closing costs. The fees are just added to the mortgage, so they can be paid every month, which will affect the overall interest.
Maintenance
Most importantly, maintenance expenses. As a homeowner, you will be in charge of routine improvements to keep your house in good shape structurally and aesthetically. While the cost of upkeep is indefinite, the size of your property is a reliable indication of its maintenance needs.
You might think that a house is an asset, but it is a liability. You will be spending tons of money on it since day one even if you buy it with cash. Although the several costs associated with homeownership can be discouraging, it entails security and peace of mind, on which you can never put a price.
