You’re looking at real estate listings in your area (or a brand new locale) and thinking, “I can buy one of these.” But is the price you see really the price you get? The answer, more often than not, is an emphatic “NO.”
Besides the cost of actually buying your home, you’ll have to deal with the added fees and hidden costs that can come with taking out a home loan, finding and inspecting the right house, and closing. In addition, you’ll need to factor in the long-term expenses that go along with actually owning a home, including monthly mortgage payment, utility bills, property taxes, and the cost of renovations and general maintenance. Taken together, these can significantly inflate the price tag of a home and put real estate you thought was in your budget suddenly out of reach.
So, what’s the best way to determine the real cost of your next home purchase? The answer comes down to plenty of research, saving, an understanding of each extra fee, and buying from a service that’s upfront with you every step of the way.
How to prepare for the costs of home buying
The homebuying process isn’t just something you can jump into. Instead, you’ll need to plan ahead, get an understanding of what will be expected of you and the current state of the real estate market. Hopefully, your reconnaissance mission confirms what you already knew — that you have the finances to buy — right now.
Do your research
Research, research, research. At every stage of the buying process, it’s important to remember that the more information you have, the better. If you’re unfamiliar with the ins and outs of the homebuying process, getting acquainted (by reading sources like the Bungalo’s blog) will be a good starting point. From there, take a look at listings in the area you want to move to get a good idea of what the real estate market is like.
Make a savings plan
Making a savings plan is a good way to ensure financial stability moving forward. The cost of owning a home will remain even after the closing documents are signed, so having a strong savings account will be essential. How much of each paycheck you want to put away will depend on how much you’re currently spending on housing (ideally it should be less than a quarter of your monthly income) and what kind of debt you also need to pay off.
Get pre-approved
You may think there’s a certain amount you can spend each month on your mortgage. Your lender, however, may have other ideas. The preapproval process is when a lender looks at your financial information — including factors like salary, credit score, and existing debt — and tells you how much you’re able to take out a loan for. In some cases, it may make sense to talk to multiple lenders, get a loan estimate from each and see which offers you the best rate.
The upfront cost of buying a home
Once you’ve been preapproved, it’s time to start looking for a home in earnest. Even once you’ve found your dream house and reached an agreement with the owner, you’ll need to secure the purchase by paying out the upfront costs — or the initial payments. These include:
Earnest money
Earnest money, also known as good faith money, is the money that you give to the seller before a deal is finalized to show you’re in a financial position to pay the rest. This payment is usually made through an escrow account, which means that a trusted third party holds on to your money until the deal is finalized.
Down payments
While they’re often talked about similarly, there’s actually a big difference between earnest money and your down payment, if you have one. While earnest money is put on the table to incentivize a final deal and down payment is the initial payment you’ll be making on your home. This can be anywhere from 3-5% of the purchase price to a full cash offer if you have that kind of money on hand. Remember, the more you can pay upfront the lower and shorter your monthly mortgage payment will be.
Inspections
It’s always good to know what exactly you’re buying when you’re buying it. The flat fee of hiring an inspector could potentially save you thousands of dollars down the road.
In today’s competitive market, many buyers are trying to get the edge in the bidding process. A great way to sidestep this problem entirely? Purchase a Bungalo home. All Bungalo homes come with a third-party home inspection report that was performed upon the completion of the renovations. Having this information gives buyers peace of mind and an advantage on today’s market since they can act quickly on purchasing a Bungalo home. Bungalo also recommends that all buyers get their own home inspection.
Closing cost
At this point, you’ve inspected the home, been approved for the mortgage, and reached an agreement with the seller. Now it’s time to seal the deal. This stage is called closing and, while essential, it can add significantly to the total price of your new home. Much of this will come in the form of fees associated with your mortgage loan — including fees for a real estate attorney and an application fee. You’ll also need to pay what’s called either an origination or loan origination fee. This is a payment for the cost of evaluating your loan application and determining that you’re able to pay what you say you can. A part of this fee is typically used to cover paying for a notary. Many lenders will also charge you in advance for the interest on the first month of your mortgage during the close.
In addition to the mortgage-related costs, there are several other fees and extras that will add to the total closing cost. These include:
- Recording fee: Every home or land purchase needs to be recorded by the state — a cost typically covered by the buyer. According to the Home Buying Institute, the average cost nationwide is $125, although the amount in your state could vary greatly.
- Title services: The process of transferring the title of a home from its previous owner to you can be an expensive one. This will usually include optional title insurance (notably, this is different from homeowners insurance) and a transfer tax.
- Appraisal fee: An appraiser is a professional hired to identify the “true” value of a home.
A handy checklist or closing cost calculator tool can help you determine what to expect for closing in your area.
Recurring costs associated with homeownership
The furniture’s in the right place and the walls are painted just the way you want. The family’s all here. Your new house is starting to truly feel like a home. Just because you’re out of the home buying process, however, doesn’t mean you’re done paying
Some recurring costs you’ll probably see once all the ink has dried on your title and mortgage include:
- Your monthly mortgage payment: This is the big one. Each month, you’ll be expected to pay a set share of your mortgage loan. The amount will depend on your interest rate and how many years your mortgage is for.
- Utilities: Day after day, month after month, your utilities, such as electricity, internet, water can add up. Each is a part of homeownership that can’t be forgotten.
- HOA and other membership fees: If you’ve purchased a home in a community with a homeowners association (HOA) or condominium association, you’ll have to pay dues. These fees vary in price depending on what the association offers its residents. Services can include anything from lawn care to trash removal.
- Property taxes: You’ve probably heard the expression, “there’s nothing certain but death and taxes.” The idiom stands, even in the unpredictable world of homeownership. What’s a little less predictable is the amount of property taxes you’ll need to pay each year. In fact, there’s quite a bit of variance across states and municipalities. In most places, your taxes will go up with the value of your home.
- Maintenance costs: Once upon a time, you probably called on a landlord when a dishwasher stopped working or you noticed a hole in the attic wall. Those days are over. As a new homeowner, it’s now on you to handle any maintenance issues that come up and put in the regular work to prevent extra expensive surprises. This can mean anything from having your roof regularly inspected to buying new appliances.
With so many recurring costs that need to be factored into your calculations, it’s important to understand that getting approved for a mortgage loan is just the beginning.
Move-in ready vs. a fixer-upper: Which offers the most value?
The costs that will come with your new home after close will also vary depending on the kind of home you’ve purchased. Will you need to do significant work on a new abode to turn it into your dream home? If so, is it the kind of work you can do yourself or will you need to hire contractors? If you answered yes to both those questions, then you’ve probably purchased a fixer-upper.
The appeal and challenges of a fixer-upper
We get it: There’s something truly romantic about turning a run-down piece of property into the home of your dreams. Buying a fixer-upper — a term for a home that’s on the cheaper side and a little rundown but has a lot of potential — may mean a lower monthly mortgage but it also means an additional time commitment, extra costs in contractor fees, and potential quality control issues.
Of course, the total costs of renovating a fixer-upper may wind up being far more than you bargained for. Depending on the state you live in, your property taxes will also increase as the value of your home does with each renovation.
Value you can trust in a move-in ready home
In contrast to a fixer-upper, move-in-ready home is a property that will take no extra work or payments on your part to live in. In addition to not requiring a contractor for basic needs like insulation or a foundation, move-in-ready homes are more likely to have the features and amenities you’re looking for.
At Bungalo, we ensure that all of our homes are move-in ready and meet the standards of our Bungalo Certified guarantee. That includes:
- Multiple rounds of inspections: Before we even list a home on Bungalo, it undergoes multiple rounds of inspections — including by a third party. You can view our final inspection report on the home’s listing page before even setting foot inside.
- 90-day Post Close Protection: If any part of your new home doesn’t meet our Bungalo Certified standards, we’ll cover it for the first 90 days after close. That’s plenty of time to uncover any issues that may arise.
- A one-year warranty: Luckily, our assistance doesn’t end at the 90-day mark. Your purchase also includes a free third-party home warranty. How’s that for added peace of mind?
From a sturdy foundation to top-of-the-line renovations you can move into any Bungalo home with confidence.
Buying the easy way with Bungalo
Post-close peace of mind isn’t the only way Bungalo can make the search for the next home simpler — and maybe even cheaper — than you ever expected. We do things a little differently at each stage of the home-buying process. Here’s how it works:
- Work with the mortgage lender of your choice: Get preapproved with the lender of your choice. Whoever offers the best deal for you, we’re happy to work with them.
- Make a paperless offer: You can submit your offer online in minutes. No guesswork needed.
- “No Hassle” pricing: Bungalo homes accept the list price on a first-come, first-served basis. That means every willing and able homebuyer has an equal opportunity to own one of our homes.
- Closing assistance: We offer an easy-to-use closing checklist that ensures you’ve done everything you need to hit your move-in-day target.
There’s a lot that goes into buying a house. Bungalo takes a few of these logistics off your checklist. If you know you have the finances to make buying a reality, Bungalo can help you close like a pro.
Learn more about who we are, and how we help potential buyers find the home of their dreams.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.
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