December 10, 2021
As we slowly bounce back from the pandemic, properties are selling fast. In fact, houses spent fewer days on the market this year than in any single month since 2016, with an average of 43 days. This was the shortest period of time recorded in the past 2 years. The housing market isn’t poised to cool down any time soon, either. Experts even believe that it will only become less competitive at the end of 2022.
So if you’re house hunting, it’s best to get a move on before your dream home is snapped up. But with sales moving at breakneck speed, you may be finding it difficult to navigate the market, especially financially. Having a good grasp of the different payments you have to make can help you along. We quickly run through them below.
When picking a house to buy, you’ll pay a portion of the purchase price upfront. Exactly how big that portion depends on how you plan to finance the remaining amount. For example, we’ve previously discussed that loans from the Federal Housing Administration require you to put down as little as 3.5%. Meanwhile, a down payment of 20% or more will significantly improve your chances of a mortgage approval. However, take note that making larger down payments can lower your credit score.
When finalizing a mortgage, you need to pay closing costs to cover various services and expenses like application and appraisal fees. These will usually comprise of 2% to 5% of your loan and are needed to gain access to your new property. You have the option to pay them upfront as a one-time expense or integrate them into your loan. However, the latter isn’t recommended if you’re planning to live on the property in the long term, as interest rates will cause you to pay more for longer.
Property tax and HOA fees
You usually have to pay property tax for as long as you own your house. Often, it’s listed on your mortgage bill but is kept separate from your loan and its interest. It’s important to note that if your neighborhood’s home values increase, so will your property tax. Houses located in a condominium or planned community may also be required to pay a monthly fee to the local homeowners’ association. This will be used to maintain various services, like communal amenities, landscaping, and repairs.
There are two types of insurance that apply to your home. Homeowners’ insurance is provided by most mortgage lenders and covers damage caused by issues like theft or natural disasters. Meanwhile, private mortgage insurance is required when your down payment is less than 20% of your home’s purchase price. It’s designed to protect lenders if you default, and will be removed from your mortgage plan once your house reaches 20% equity. This can be achieved if home values in your area increase or you pay off enough of your mortgage over time.
Procuring additional guidance
If all these financial concepts still seem daunting, you can always consult a financial professional. Modern accounting programs teach financial advisors all the necessary accounting and business service skills that they will need to aid you in your search for a reasonably priced house. These professionals can also leverage insights from data analytics and are taught to adapt to market trends. Any professional you hire will be capable of crafting strategic and effective financial plans that will let you pay for your home in such a way that it won’t be a burden. It may seem like an added expense, but it will end up saving you more money in the long term.
All things told, finding and buying a house can take over three months or less. Doing your research on various payments and drafting purchasing strategies are sensible and effective first steps that can make this process easier and less complicated. If you’re the type to prepare, don’t worry: there are other things you can do. Considering things like your debt-to-income ratio and the state of the housing market when you make your purchase can help inform your decision further and bring you closer to your goal of becoming a homeowner.