Owning a house is almost everyone’s dream. We spend years and years working hard to secure a roof above our heads that are under our names. Now that you have finally decided to purchase your first house, you need to make sure that you are armed with the proper knowledge needed when dealing with the real estate market. Below we will show you the most common terms and expenses you would likely encounter once you begin house hunting.
Everyone is familiar with the down payment, and chances are, this is what you have been saving for a long time. Generally speaking, a down payment is an amount the buyer should pay for when taking out a house loan. The typical down payment required by most mortgage lenders in the United States is 20% of the property’s total value.
If 20% is not feasible for you, you can consider taking out a loan from the Federal Housing Administration (FHA). They can help you secure a property with a down payment of as little as 3.5% of the house value. If you are a family member or legal spouse of an active soldier or a veteran, you can also consider a housing loan from the US Department of Veterans Affairs.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, then you are required by the real estate law to purchase Private Mortgage Insurance. PMI is a type of insurance that protects the lender, not the buyer or the one purchasing the plan. Though this is considered an unconventional loan, many people have become early homeowners with the help of the PMI because, with this, you are allowed to give a down payment of as low as 5% to 19.99%.
The cost of the PMI ranges from 0.25% to 2% of your loan’s remaining balance per year. The price would also vary based on the amount of your down payment, your credit score, and the loan term that you chose. Generally speaking, there are four types of mortgage insurance:
- Borrower-paid Mortgage Insurance
- Single-premium mortgage insurance
- lender-paid mortgage insurance
- split-premium mortgage insurance
Real Property Tax
Another important expense that you need to be fully aware of is the real property tax. It is the amount you pay to the government once you decide to own a house. The cost of property tax can vary from state to state. However, the general rule is that, as a homeowner, you are subject to the local municipal’s real estate law. To determine the tax amount, the municipality will send a professional tax assessor to look at the property.
Factors that will affect the assessment are the building’s actual value, the current value of the land itself, and its location. Money that came from your property task will be used to fund community developments such as public hospitals, roads, and schools.
Homeowner’s insurance is a type of property insurance that you need to have regardless of the amount of your down payment. It is completely different from the Private Mortgage Insurance we mentioned above because a homeowner’s insurance primarily protects the buyer/owner from any damages on the property itself and everything inside it.
To delve deeper, home insurance offers four types of incidents: loss or damage of belongings and assets, exterior damage, interior damage, and any injury caused by accident within the insured property. For example, if you have a home insurance loan and there are damages caused by water, the average cost the insurance should cover to repair or reinstate your home to its prior condition is around USD 10,000.
Keep in mind that every insurance has a limit and when it comes to home-owner’s insurance, the typical limit is at USD 100,000. You also need to remember that standard policies do not cover acts of war and/or acts of God such as floods and earthquakes. If you are going to live in an area prone to floods, wildfire, or earthquakes, you might want to consider buying a more comprehensive plan.
Some real estate firms have in-house home inspectors while some don’t. Either way, you have to make sure that you have the property inspected by a professional before closing the offer. The home inspection is the buyer’s best chance of knowing whether the house has any major damages and the cost of repair it will cost them to fix the issues. During the inspection, you have to make sure they cover the:
- Heating, Ventilation, and Air-conditioning (HVAC) system
- Electrical system
- Water system
- Safety and Fire issues
They should also focus on signs of any major fire or water damage as well as infestation of rodents and other insects. These factors will greatly affect the final price of the property so make sure you have the house checked before making a final offer.
Remember, we are talking about your hard-earned savings so make sure you got all aspects covered. Getting your first house should be an exciting experience so make sure you ask questions and get answers that will give you peace of mind.