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Costs to Consider When Buying a Home

Homeownership comes with costs, including property taxes and homeowners insurance. It’s important to factor these costs into your budget before making the purchase. 

First-time buyers often fixate on the sales price of a home and forget about other upfront fees and expenses. These additional costs can strain a buyer’s finances and make homeownership unsustainable. Investments like a home warranty is important to save money from repair costs. For more information, https://www.cinchhomeservices.com/faq-library/-/faq/home-warranty-california and sites such as these have great information. 

Appraisal 

The appraisal is the best indicator of a home’s worth and plays an important role in the loan process. Home buyers can take steps to help their property’s appraised value, such as providing details of renovations or repairs and preparing comparable sales, but the final result is mostly out of their control. 

Lenders want to be sure that the home is worth the amount they’re lending, and a low appraisal could make it difficult for them to lend money. The borrower typically pays for the appraisal, which appears on the Loan Estimate and Closing Disclosure 

documents. The home seller may also pay for the appraisal, depending on their circumstances. 

Closing Costs 

Closing costs, or settlement charges, are the fees and expenses that home buyers must pay to close on a property. They can include an application fee, attorney fees, mortgage insurance, transfer taxes and a courier fee to transport documents. 

Buyers can shop around for better rates on services like home inspections, title insurance, mortgage insurance and credit report fees. Often, homebuyers can also negotiate with their lender to have some closing costs covered by the loan origination fee or discount points. Homeowners can also prepay for homeowners insurance and property taxes at closing. The largest closing cost for buyers is usually the commission for their real estate agent. 

Homeowners Association Fees 

Homeowners association fees, which are commonly found in condo and co-op communities, help maintain neighborhood property values. However, these fees can add up and may strain some homeowners’ budgets. 

These fees can cover lawn care, snow removal, landscaping, plumbing maintenance, air conditioning and heating costs, and repairs. They can also cover shared amenities like pools, meeting rooms and fitness centers. 

Typically, homeowners association fees are not included in your mortgage but they do impact how much you can afford to borrow. This is why it is important to calculate these costs into your overall home buying budget.

HOA Dues 

Homeowners association (HOA) dues are monthly fees homeowners within an HOA community must pay. The HOA fees typically cover shared amenities and common areas that benefit all members of the association. 

These fees can also cover maintenance for hallways, elevators, lobbies and parking lots. They also often include security and management costs. 

It’s important to understand these fees before you begin looking at homes. Often, HOA fees are non-tax-deductible, but this can change depending on state laws and specific circumstances. Additionally, if you’re not keeping up with HOA dues, you may be subject to penalties like fines and lien placement. This can impact your ability to sell the property later on. 

Property Taxes 

Property taxes are fees charged by local governments to help fund things like public schools and road upkeep. They’re often a part of closing costs, although many mortgage lenders have the property taxes escrowed and included in your monthly payments. 

It’s important to understand how your new home’s property taxes are calculated so that you can properly budget for them. Most importantly, you want to make sure that your new home’s mortgage payments plus property taxes don’t push you over the 25% rule. 

This can be done by looking at the home’s assessed value and local tax rate and then doing the math. 

Homeowners Insurance 

Homeowners insurance protects your home and belongings, as well as provides liability coverage. It is typically required by mortgage lenders prior to closing on the property. 

According to NerdWallet, the national average for homeowners insurance is $1,784 per year. But rates can vary greatly from state to state. 

When purchasing a new home, it’s important to shop around for the best price. Generally, insurers will not turn you down for a policy based on your home’s price, but they will take into account its replacement cost. You may also want to consider adding personal property coverage for expensive items like jewelry, artwork, and electronics or a separate umbrella liability policy.

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