One of the common errors made by people buying homes is to think that the only cost will be monthly payments of principal and interest on the mortgage. It is important to keep in mind that there are other expenses involved with buying and keeping a home.
First, you must have enough cash to make a down payment, if required. One big benefit of VA loans is they don’t require a down payment in most cases.
Then, in addition to the down payment, you may have to pay for a number of items commonly called "closing costs." The term "closing costs" generally refers to all charges paid for obtaining the mortgage loan and transferring real estate title. The sharing of closing cost items between buyer and seller may be agreed to in the contract of purchase.
Among the items which the buyer may be required to pay for are:
The purpose of the origination fee is to cover certain costs to the lender in making the loan, if these costs are not paid item by item by the borrower.
Certain other costs must be paid at the time of loan closing. Among such costs are the buyer's share of the current year's real estate taxes and the first year's premium for hazard insurance. These costs also become part of the recurring costs of homeownership due each year.
You may also need money on hand up front to pay for an appraisal and a home inspection. The home inspection isn’t required but nearly always is in the buyer’s best interest. You’ll typically have to pay for the appraisal up front.
You will be required to make monthly payments to cover interest and principal on the mortgage. This is the biggest item of your monthly expenses but is by no means the only one.
You will also have to pay future real estate taxes and assessments, and for insurance on the property (that is, insurance that will pay for losses due to fire or other hazards). Usually an amount to cover real estate taxes and insurance will be added to the monthly payment you make to the lender. You should bear in mind that your monthly payment may later be increased if real estate taxes or insurance costs rise. To assure yourself of the accuracy of the tax estimated by the builder or seller of the property, you may wish to discuss this matter with your lender and check with the local taxing authority.
You will have to pay the heating cost and the utility bills. The amount of your fuel bill will vary, depending upon the climate, how well the house is insulated, etc. Utility bills for electricity, water, gas, and the like will also vary, depending on the extent to which your household uses them. In figuring whether you can afford to pay the expenses on the home you propose to buy, be sure to make adequate allowance for these items. Your lender will be able to help you estimate these costs. It might also be a good idea to check with other homeowners with similar houses in the area.
Remember that, like everything else, your house will wear out as it gets older. To keep it in a good shape, you will have to pay for the cost of maintenance and repairs. You will have to paint your home every few years. Your heating and electric system will need repairs from time to time; you will have to replace equipment, and so on. An individual sewage disposal system will require care and maintenance.
If you are required to become a member of a neighborhood homeowner association, the dues or periodic assessments payable to the association may be a significant expense item. These homeowner associations are formed for the purpose of providing maintenance of items such as residence exteriors, neighborhood recreational facilities, and park and landscaped areas which are part of the residential development. Typically, these developments consist of apartments, townhouses or semi-detached homes, together with "common areas" deeded to the homeowner association. They may be called "townhouses on the green," "planned unit developments," "planned developments," "condominiums," or "open space communities."
If you are not sure you can handle the costs involved based on your present and anticipated income, you should postpone buying a home until you are sure you can carry the total monthly cost, or buy a less expensive home which you can afford. A lender can help you assess what may make the most sense given your specific financial situation.