Presented by Navy Federal Credit Union

The Real Cost of Your Home: Numbers You Need to Know

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Get a handle on all the fees and costs that come with buying a home.

Buying a home is a big investment, but purchase price isn’t everything. Keeping track of the various costs—some obvious, some more subtle—can be a challenge in itself. However, it’s a challenge worth mastering so you know what your total costs will be from month to month—and how they might even change over time. This crash course in home-buying costs can help.

Up-Front Costs: Prepare to Cover These Costs When You Buy

Home inspection. Even if your lender doesn’t require a home inspection, it’s a solid investment. The up-front cost (which averages $324 nationwide, according to HomeAdvisor, a leading online home improvement resource) can give you a clear picture of the home you’re buying and may even give you an opportunity to negotiate with the seller if the inspection reveals any safety concerns.

Down payment. While not required for some mortgages, a down payment helps reduce the monthly mortgage payment and may eliminate the need for Private Mortgage Insurance (PMI), which protects the lender in the event you default on your loan, and they aren’t able to resell your home for enough money to pay off the mortgage. Depending on the loan type and lender, you may need to make a down payment that’s equal to between 0 and 20 percent of the home’s sale price. A down payment also builds instant equity, which may be a source for low-cost borrowing with a home equity loan or line of credit. Click here to learn more about home equity loans.

Closing costs. This collection of fees necessary to close the mortgage loan can add up quickly. Your lender should provide you with an estimate of how much you can expect to pay in closing costs—typically 3 to 6 percent of the home’s purchase price, according to the Federal Reserve.

  • Processing fees cover the financial institution’s costs to prepare the loan, including loan origination fees, credit report fees and the cost of the application.
  • An appraisal fee allows your lender to accurately determine the value of the home to ensure you’re not paying more than the house is worth. The average cost is $300 to $500.
  • If your lender required private mortgage insurance (PMI), you may be required to pay the first premium during the closing process.
  • Attorney fees help ensure that all the documentation is set up correctly, which protects you.
  • Other costs lumped into the closing costs could include survey fees (to determine the property boundaries), title insurance and recording charges (the cost for state and local governments to record your deed, mortgage and loan documents).

Taxes. Depending on when you close and when property taxes are due, you could owe several months’ worth of property taxes at closing. Your loan estimate should include these costs. The taxes are calculated based on your home’s value, which means the more expensive your house is, the more taxes you’ll pay.

Insurance. Most homebuyers are prepared to pay homeowners insurance, but many don’t realize they may have to prepay an entire year’s worth of homeowners insurance when the loan is closed.

Moving costs. Whether you rent a truck yourself or hire a moving service, don’t forget to add those costs to your budget.

Ongoing Costs: Plan for the Long-Term Costs of Homeownership

Mortgage payment. Once you’ve negotiated a purchase price and you know the rate you’ve been approved for, your loan officer can tell you your monthly loan payment. If you select a fixed-rate loan, this payment amount won’t change over time. With an adjustable-rate loan, that payment may shift as the loan’s rate adjusts.

Taxes. You’ll owe property taxes on your home every year, which are based on the value of the property and the taxes levied by your city, county and school district. That means the taxes you owe may change from year to year. Home sellers must share with you the current property tax assessment, and the seller’s real estate agent can provide the previous year’s property tax amount.

Insurance. Homeowners insurance is a must, but you may also need to pay PMI if your down payment is less than 20 percent of the loan amount. VA (Veterans Affairs) mortgages don’t require homeowners to pay PMI, and Navy Federal offers qualified buyers several mortgage products that don’t require PMI, including a 100 percent financing option.* You may also be required to carry flood or other hazard insurance, depending on the home’s location. Talk to your lender and insurance provider about the costs you can expect.

Helpful Tip: An escrow account can help you budget for taxes and homeowners insurance throughout the year. It allows you to make regular payments toward your property taxes and homeowners insurance each month, then the escrow agent uses the funds in the account to pay the fees as they’re due.

Upkeep: Get Ready for Home Projects, Big and Small

Maintenance and utilities. Keeping the lawn trimmed, the lights on and the house clean are ongoing expenses. Ask the current homeowner about the typical monthly utilities (or reach out to the utility companies directly) and the age of major home components. To give some perspective, a well-maintained furnace unit will generally need to be replaced every 15 to 20 years, while an asphalt shingle roof should be replaced every 20 years, according to the National Association of Home Builders. An emergency fund can help you cope with the cost of unexpected repairs.

Home improvements. If you buy a fixer-upper, you’ll probably have a running list of home projects that you hope to complete soon after moving in or in the long term. Before diving in, it’s wise to price out the cost of paint, fixtures, flooring or other home features you plan to improve, and get an estimate for the cost of labor if you plan to hire someone to do the work. Even if you buy a home that’s move-in ready, you may still have projects you’d like to complete down the road. When you’re ready to get started, consider borrowing money with a home equity loan or line or tapping into your savings to pay for home improvements.

Decorating/furnishing costs. While not an essential cost, putting your own stamp on the new place is part of the fun. Setting aside some funds for furniture or window treatments can give you something to look forward to as you settle into your new home.

Be a Savvy Homebuyer

The costs of buying and owning a home may be numerous, but the benefits of homeownership are plentiful, too. Understanding the various fees and expenses can help you make a confident home-buying decision.

Learn more about home-buying, run the numbers and get organized.

*Product features subject to approval. 100% financing loans may include an additional funding fee, which may be financed up to the maximum loan amount. Available for purchase loans only.

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