The secret costs associated with buying a house

There are costs associated with buying a home that are not immediately known unless you’re looking. Many times, first time homebuyers and those who purchased a long time ago get confused about these costs. For example, there is a difference between the down payment and closing costs. I break them down here in order to prevent sticker shock.

Down Payment

Financial institutions love when borrowers provide a portion of their funds to finance their transactions. Traditionally aspiring home owners had to save 20% of the purchase price of their desired home and the financial institutions would fund the rest. Now, there are many first time homebuyer programs looking to promote homeownership that only require 3% of purchase price as a down payment. The Federal Housing Administration (FHA) provides a great loan product to first time homebuyers who have as low as a 580 credit score and only require a 3.5% downpayment.

So, lets do the math! If your desired home is $250,000, your down payment with a conventional first time home buyer loan product would be $7,500. A down payment using the FHA loan would be $8,750.

A handful of financial institutions also offer 100% financing which results in $0 down payment for you. Ask me about which ones!

Down Payment Assistance (DPA) Grants and Programs

If saving $7,500 or $8,750 is a challenge, there are amazing down payment assistance programs out there that will pay a portion or all of these costs for you. There are local and state programs that are giving free money to advance homeownership, provided you meet the criteria. Private financial institutions have also created these loan products themselves so they are able to perform all the reviewing and approvals themselves. Ask me about these programs!

Closing Costs

Getting your down payment covered is a relief. However, you will still have closing costs to pay. Closing costs are best defined as all the costs associated with buying a home outside of the down payment. These costs include what the lender charges to loan you money, pre-paid homeowners insurance (which is required when getting a loan), the property taxes due for the year, and any inspections you performed on the home that you did not pay at the time they were performed.

Don’t despair! Properties that have been on the market for a while, are in disrepair, or have a very motivated seller provide a chance for your real estate agent to negotiate seller paid closing costs. I have employed three different strategies to get closing costs from the seller for my buyer clients. It is possible in every market!

The home buying journey is not without its ups and downs. A smooth journey starts with a great real estate agent and mortgage loan officer that will educate you on the front end of the process to avoid costly mistakes on the back end. What are you willing to trade off in the short term to achieve your long term goal of wealth generation through homeownership?