Once you have prepared your personal finances and documents to the point that you can secure a mortgage preapproval, the big thing on your mind is probably going to be the monthly cost of the mortgage payment.
There are four main components that factor into your mortgage payment which are principal, interest, taxes, and insurance (PITI), but these are not the only costs that you need to be aware of.
There are many other hidden costs to completing the purchase and transfer of a home that you might not have considered, so make sure you are financially prepared for everything that is involved in closing the deal.
You Need To Consider Whether Or Not A Home Warranty Is Right For You
Some home buyers are big fans of getting a home warranty, and some think that it is simply a waste of time because it is unnecessary, and there are even some agents who will buy a home warranty for their clients to put them at ease.
Regardless of how you feel about getting a home warranty, it is still something that you will be asked to consider, and given the fact that you are moving into a new home and may have a significant part of your income tied up in payments on your home it may put you at ease to have a warranty.
Home warranties are generally not too expensive, and the added peace of mind that it gives you may well be worth the cost given the fact that the home buying process can be stressful.
If You Get A Mortgage, You Will Need To Pay For An Appraisal
Getting an appraisal is going to be obligatory no matter what type of lender you are working with, because the house is collateral against the loan and they will not lend you money unless they know exactly what it is worth.
The appraisal is very important to the bank and it should be important to you, because chances are that they will not lend an amount of money that exceeds the amount of the appraisal.
Because appraisers are not home inspectors, you might want to have a home inspection before hiring an appraiser so that any problems with the house can be identified and factored into the appraisal, which leads us to the next point.
Home Inspection May Not Be Legally Necessary But It Is 100% Advised
Having a home inspection performed on the house you are going to purchase is probably the best advice I could give to anyone who is looking to buy a home.
A home inspection is not technically legally required, but as a real estate expert I think it is crazy to consider buying a house without first getting a qualified home inspection.
It is a good idea to get a home inspection before you get an appraisal and then give it to the appraiser, because it might help the appraiser notice defects that might have gone overlooked.
Points To Buy Down The Interest Rate For Your Mortgage Payments
This is an optional consideration for your mortgage, but depending on your situation and the type of mortgage you get it might be a good idea to buy down the interest rate buy adding points to the final cost of the loan.
A point is one percent of the total loan amount, and by adding points to the final costs of the mortgage you can lower the interest rate so that the size of your monthly payments decreases.
If you want the smallest down payment possible then this might not be the right choice for you, but if you want to lower your monthly payments then it might be a good idea.
Closing Costs Of The Mortgage Origination And Title Transfer
This is one of the more expensive costs that must be considered because it will add up to thousands of dollars at the time of closing when the mortgage is officially originated and title transfer occurs.
Your mortgage broker or lending institution will charge for the origination of the loan, and there are about a dozen small fees within the different steps of the title process that all add up.
This is usually the most expensive of the additional costs so it is a good idea to ask your lender and title company for the estimation of the closing costs you will need to pay.
You May Likely Need To Pay For Private Mortgage Insurance
If you are getting a government insured mortgage such as a FHA, VA or HomeReady mortgage then you will need to pay for private mortgage insurance or a mortgage insurance premium for the lifetime of the loan.
While one of the benefits of a mortgage like an FHA loan is that there is no prepayment penalty, one of the downsides is the the mortgage insurance or premium will never come off as it can with a conventional mortgage.
When you make a 20% downpayment with a conventional mortgage you will usually be allowed to drop the monthly private mortgage insurance premium once you reach 78% amortization of the overall loan.
Don’t Forget About Property Tax Prorations
While the regular property taxes will be built into the monthly payment of the mortgage, there is also the prorated amount that you will need to pay as well.
The amount of the prorated property taxes that you will need to pay will depend on the time of the month and year that you are taking possession of the title to the property.
Depending on your situation, this could either be a proration on a semi-annual or monthly basis, which can be somewhat costly and you must account for in your calculations.
Final Thoughts About Additional Home Expenses
The process of buying a house and securing financing from the original presentation of the offer to closing the deal and taking title transfer can be quite a royal beauracratic headache.
Luckily, there are millions of people who have come before you in the home buying process which is proof that it is a goal that is within anybody’s reach.
By making sure you have a list of every single expense that you might incur, you can be 100% prepared for anything that the home buying and mortgage process can throw at you.