It’s less expensive to rent than own.
One of the most widespread untruths about home buying is that renting your home is less expensive than owning your home. When you are renting, it needs to be remembered that the renter is paying for the landlord’s mortgage plus the extra amount that the landlord charges in order to make a profit on the rental property. Take the Denver Metro area for example. According to the Denver Post this past June, Denver, the average 1 bedroom apartment rental is $1,540 a month. When you flip that to the other side of real estate, according to Trulia, the average 1 bedroom property sale price is $270,000. When $270,000 is calculated down into monthly payments with the national average interest rate of 3.97% and 0% down, the monthly mortgage (prior to insurance) would be $1,284. That is $3,072 annually that is put into your pocket instead of someone else’s. Plus, rent isn’t always consistent. Rental prices can fluctuate from year to year whereas your mortgage will not change. That average rental price of $1,540 could easily go up to $1,700 next year but that mortgage payment of $1,284 will remain.
You need a 20% down payment.
While it is ideal to have as large of a down payment that your savings allows, a down payment, especially a large one, is not always realistic. The majority of conventional home loans require a 5% - 20% down payment but there are also a few types of home loans that require as little as 0% down.
- VA and USDA - 0% minimum down payment
- FHA - 3.5% minimum down payment
- Conforming loan - 3% minimum down payment
Of course, there are certain requirements and restrictions to each of these loan types so it is ideal to discuss with your lender or financial adviser on which loan will be the most beneficial for you. Waiting to buy a home until you have saved up for a 20% down payment may also end up hurting you more than helping. During the time you are saving, the housing market will likely fluctuate and you may miss your opportunity to purchase the perfect property now.
All that you need upfront is a down payment.
When it comes to buying a home, the upfront costs attention usually casts a spotlight on the down payment. However, there are a few other costs that will be required upfront. Prior to sitting down at the closing table, a home inspection is recommended/required. If the property has specifics such as a chimney, foundation trouble, or a septic system, you may also need to pay for specialists in those areas for an inspection as well. After the home inspection and any requested repairs have been made, the home will need to be appraised. This can be an upfront cost at the time of the appraisal or included in the closing costs. Once at the closing table, anticipate paying for closing costs, property taxes, and homeowner’s insurance. Closing costs can be anticipated to estimate around an additional 2.5% of the purchase price of the home. Fortunately, closing costs can be negotiated to be a cost of the party selling the home. When everything is said and done with the purchasing process, there may still be leftover repairs that you will want to fix or additions you may want to make.
The only additional ongoing costs after closing will be PITI (principal, interest, taxes, insurance).
Mortgage payments and home insurance are not the only costs that will be continuing from month to month. Depending upon the community that your new home is in, HOA (Home Owners Association) fees and CDD (Community Development District) fees may be month costs that need to be added into your monthly expenses. If you are used to renting, additional costs that your landlord may have included in your rent may be water, sewer, gas, and trash. To figure out what to expect, you can ask your landlord if he/she has a record of what your average monthly usages are, then contact the companies you anticipate utilizing at your new home to get cost estimates based on your previous usage.
Not using a real estate agent will save you money.
A buyer’s real estate agents usually receives between 2.5%-3%, however, the buyer is not the party who pays that commission. The real estate agent that was involved in the sale of the property charges between 5%-6% commission of the sale then splits that commission with the buyer’s real estate agent. The seller is actually the party who pays both real estate agents and the buyer gets to utilize a real estate agent, essentially, for free.
We hope that you find these 5 tips helpful! If you are interested in a free, non-obligatory consultation - please give me a call at your convenience at (720) 305-0757.