Buying a house is considered “the American Dream” by many people. It’s a dream for people all around the world. But the reason it’s a dream is because many people never achieve it.
But you can. But first you need to know, how much money do you need to buy a house?
There are many things to consider:
- Closing Costs
- Property Tax
- Real Estate Agent Commissions
- Private Mortgage Insurance
- HOA Fees
Your mortgage is the monthly payment you are required to pay for the cost of the house. If you buy a house, the typical loan you will receive is 30 years, although it is recommended to pay it off as fast as possible.
The sooner you pay the house off, the less interest you have to pay. Interest adds up. Quick.
Let’s use an example to define just how much interest costs. Let’s say you take out a 30 year loan on a $120,000 house at a 5% interest rate. You give a 20% down payment, which isn’t included in the mortgage cost.
Your monthly payment would be $537 a month, and after 30 years you would have paid $193,256 in total. The interest would have added up exponentially! You paid almost double the original mortgage price.
Let’s cut that loan in half. You can still take out a 30 year loan, just pay it off faster. Your monthly bill would be $791 a month. You will pay the property off twice as fast, with only a couple extra hundred dollars a month. The end total would be $142,343. You saved almost $50,000 from that!
The faster you pay the mortgage off, the less interest you will have to pay – it adds up fast!
There are many factors to consider when trying to calculate the closing costs of the house you are buying, along with the location. Assuming we use the same house, closing costs would be approximately $4,000. It isn’t exact, and depends on what is done to the house.
Property Taxes depend on the tax rate of the county. Go to a Property Tax Calculator and determine what it is.
If we used the same house and said it was in NC, then property taxes would be approximately $1,400 annually.
Homeowners insurance is entirely unpredictable. It depends on your zip code and price of the house. But to give you a ballpark estimate, the average cost of homeowners insurance in North Carolina is $1,193 annually.
Real Estate Agent
You won’t have to worry about paying the real estate agent if you’re the buyer, because the typical 6% commission comes from the seller.
However, you can get the price for a cheaper deal if you don’t use a real estate agent. If you don’t use a real estate agent, you can make a deal with the seller to potentially take off 3% of the selling price.
Private Mortgage Insurance
You have to pay for private mortgage insurance if you have a down payment that is less than 20%. It really depends on the rate that the lender gives you, but you should expect to pay anything under $100 a month.
HOA (Homeowners Association) is only involved in select properties. They determine how high your grass can be cut, and basically what the set-up will look like. This is typically about $100 a year, although it depends on location.
Don’t forget about the bills! This completely depends on your lifestyle, and how much you budget.
The cost of the house isn’t the only thing you need to consider! As you can see, there is a lot that goes in to being a homeowner, and you need to make sure you have a good plan before you purchase one!