Expense List for Buying a Home
There are many expenses that come with buying a home. The following list is
a good example of what to expect:
Down payment - A minimum of 20% of
the home’s purchase price is usually required for the best loan terms and to
avoid paying private mortgage insurance (see below), but it’s entirely possible
to buy a house with a smaller down payment.
Monthly mortgage payments - Include
loan principal, interest, and sometimes additional charges for taxes and insurance.
Property taxes - Amounts vary, but the average
is around 1.5% to 2% of a home’s purchase price.
Homeowners insurance - Again, the cost varies. Call insurance companies
for more information, or contact the Florida Department of Insurance for
surveys of prices for insurance rates.
Private mortgage insurance (PMI) - If your down payment
is less than 20% of the purchase price, this can tack several hundred
dollars each year to your loan costs until the equity in your home reaches
22%, when you no longer need the insurance.
Maintenance - Varies year to year, but you
may spend about 1% of the purchase price annually on maintenance and repairs.
Closing costs - Include points and other
fees charged by the lender, which can add up to 3% of the amount you borrow;
title insurance, from a few hundred to over a thousand dollars, depending on
the purchase price of your home; inspections, about $200 to $500; and other
miscellaneous fees. Many of these costs are negotiable between the buyer and
seller, and are dependent on local customs. You can also negotiate with the
lender to reduce, and in some cases completely waive, certain costs.
Housing expense ratio
Typically, mortgage lenders won’t allow these housing expenses to be more than
one-third of your household monthly gross income. In other words, 28% of your
monthly gross pay (for example, your annual salary divided by 12) is the usual
maximum "housing expense ratio" allowed by lenders.
The "housing expense ratio" compares your monthly
gross income to "PITI," an acronym for:
- Principal, or the amount you
borrowed, of your mortgage loan
- Interest on the mortgage loan
- Taxes: property taxes
- Insurance: homeowners and private
mortgage insurance (PMI)
Debt-to-income ratio.
On top of the 28% lenders allow for monthly housing expenses, they will usually
let you spend another 10% for other debt repayments such as student loans,
car loans and other similar loans. Added together, your housing expense ratio
and
monthly recurring debts make up your "debt-to-income ratio," and should not be
higher than 38% of your monthly gross pay.
Now the Good News
The good news is that there are tax benefits to owning a home. The IRS lets you
deduct mortgage interest and real property taxes, within limits, on your annual
income tax return! Contact a real estate or tax attorney for the specifics
in
your area.
