If you are thinking about buying your first home, chances are you are saving up for a down payment.
Yet that’s not the only cash you’ll have to come up with before you get the keys to your new place. And once you do, there are costs associated with starting up and maintaining your home.
“It is always more than people think,” said certified financial planner Sophia Bera, CEO and founder of Gen Y Planning, based in Austin, Texas.
For instance, the median sale price of houses sold in the U.S. was $327,100 in the first quarter of 2020, according to the St. Louis Federal Reserve.
Starter homes, however, are typically less expensive. The National Association of Realtors found that the starter median home price in U.S. metro areas was $233,400 in the first quarter of 2020. If you have a down payment of 20%, which Bera recommends, you’ll have to come up with $46,680. If you put down 10%, you’ll need $23,340 and a 3% down payment is $7,002.
Then there are closing costs, which may run thousands of dollars, and other often overlooked funds you’ll need to get started — like buying furniture and having money set aside for maintenance.
Here’s what to look out for when buying your first home.
However, that doesn’t necessarily mean you are going to get that rate. Banks take into account your credit score, the type of loan and how much you put down. It also depends on the lender; some may offer lower rates than others.
“We are looking at pretty high credit worthy people, on average, when we report those numbers,” said Skylar Olsen, Zillow’s senior principal economist.
“It is a 20% down-payment rate we are talking about.”
There are different types of loans, like conventional mortgages with a 30-year or 15-year fixed rate. Adjustable rate mortgages, or ARMS, may offer a lower initial rate. With an adjustable rate loan, after a fixed time period, the rate goes up.
There are also FHA loans, which offer low down payments and closing costs and are guaranteed by the federal government. They also come with an upfront premium of 1.75% of the purchase price of the home. For a $233,400 home, that means you’ll pay a mortgage insurance premium of $4,084.50. You’ll also pay monthly insurance premiums, which depends on your loan amount, the term of your mortgage and your loan-to-ratio value. It ranges from 0.45% to 1.05% of the loan amount.
Service members and veterans can apply for a VA home loan and a down payment or private mortgage insurance often isn’t required. The current rate for a 30-year fixed loan is 3.4%, according to Bankrate.
Shop around for the best interest rate and fees and then get pre-approved for a mortgage.
This is the part of the sales price that you pay out of pocket. You finance the rest with your mortgage.
While a 20% down payment may seem hefty, there is one big advantage to it: Anything less…
Read More: Here’s how much money you’ll really need to buy your first home