Buying your first home can be daunting. Not only do you have to save for your down payment, but there are several over house costs that add up.
Before you get overwhelmed, we’re here to help. While these costs will vary based on home price, type, location, and situation, we’ll at least get you started so that you’ll have a clearer understanding of how much you may be spending on:
zzYour down payment is how much cash you need during the onset of your purchase. This initial payment is usually the hardest to save for, and usually the biggest check you’ll write in your life - at least up to this point. Most down payments range between 5%-20% of the total price, but this number varies greatly based on what sort of loan program you’re using because, as it turns out, saving up $100,000 (20% of our $500,000) usually takes some time.
Some loans will require you to have even less for a down payment. FHA loans, for example, have a minimum purchase price requirement of 3.5%.
Closing costs are third-party and lender fees that you pay when you’re finalizing your real estate transaction. The national average of closing costs 2%-5% of the property’s total purchase price, including property taxes, mortgage insurance, and more. In Washington state, this number is usually between 1%-3%.
Closing costs are among the most hotly negotiated items in a real estate transaction. Sometimes a real estate agent can get these lowered, and sometimes they can even get the seller to pay them.
Like the down payment and closing costs, moving cost are a one-time payment. They also vary greatly, based on a few factors including:
If you hire movers, the average cost of a local household move is $1,250, whereas the average cost of a long distance move is $4,890.
Your mortgage payment will vary greatly based on the cost of your home and the terms of your loan. We discuss this further in our post about choosing between a 15-year and 30-year mortgage. You will pay more per month with shorter loans, but will save tons of money you would spend no interest over time with longer loans. One popular strategy used by many first-time home buyers is to start with a 30-year loan and switch to a 15-year loan later on.
Assuming you’re starting off with a 30-year loan, let’s break down how much your mortgage payment would be if your interest rate is 3% (rates are really low these days).
Private Mortgage Insurance
If you have a conventional loan (a loan that is not insured or guaranteed by the government) and have made a down payment that is less than 20%, you will probably have to pay private mortgage insurance (PMI).
PMI protects the lender if you stop making payments on your loan, and usually have to pay it until you have roughly 22% equity in your home. However, this doesn’t mean that you have to pay 22% of your home’s original price. It’s 22% of the value of your home. If your home was valued at $300,000 when you bought it and now it’s worth $350,000, 22% is $273,000.
The average cost of PMI is between 0.55%-2.25% of the original loan amount per year. Using the information from the tables above, here’s how much you may spend on PMI per month if your rate is 1%:
You can reduce your house costs by buying mortgage points. These points are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point costs 1% of your mortgage amount, or $1,000 for evert $100,000. They’re definitely worth looking into.
The average effective tax rate in Washington State is 1.03%. You pay half of this every 6 months, but this it’s usually divided up into monthly increments.
Homeowner Association Dues
If you live in a community or condo building, you will also be paying homeowner’s association (HOA) dues. These dues pay for a variety of things, including landscaping, upgrades, trash removal, and general maintenance.
Well-run HOAs can increase the value of your property by 4.2%. Poorly run HOAs can be a nightmare. Learn what you can about your community’s HOA before making a purchase. It may end up be a bigger deciding factor than you realize.
HOA fees vary drastically based on where you live. In the Puget Sound area, the average monthly assessment owners pay to their condo associations is around $0.61 per square foot. In Seattle, it’s $0.71 per square foot.
Homeowners and Hazard Insurance
Homeowners insurance provides coverage to repair or rebuild your home after damages caused by weather, fire, smoke, vandalism, and the like. Meanwhile, hazard insurance is a subsection of homeowners insurance that protects you as a property owner against natural events such as fires, lightning, rainstorms, hailstorms, and snow.
The average premium for these types of insurance in Washington state is $854 for the year ($71.17/mo), but varies based on your location. You can get a free quote here.
Other House Costs
There are some other house costs to consider, such as water, sewer, gas, and electric. These costs also vary and sometimes some or all of them are covered by an HOA.
All together Now!
While these numbers aren’t exact - especially since HOAs vary - this here’s an indication of how much your monthly payment may be when you first buy a home.
Sound like a lot? It is, but just remember:
There are plenty of loan options out there for first-time home buyers
PMI eventually goes away
If you don’t have an HOA, this number doesn’t apply to you
You’re building equity
Homeowners get great tax breaks
You now own a home!
Need any more information about house costs? Shoot us a message. We’ll be happy to hear from you!
Anthony Greer is a Seattle-based Content Writer and Brand Messaging Developer that works with service-based businesses.