Investing into Homeownership

Buying a home can be expensive if there is a lack of planning. Between the down payment, closing costs, and preparing for unforeseen expenses, it can be challenging to know precisely how much money you need to buy a house, especially if you are on a tight budget. There are several ways to determine what a Buyer should prepare for when investing in a home, what expenses to expect, and how to calculate the amounts you will need to prepare to cover all the necessary expenses and maintain the property after you buy it.

Here are some common expenses when buying a house

Downpayment: The most common obstacle buyers have when buying a home is saving for a downpayment. Typically, future homeowners should save at least 20% for a downpayment to eliminate paying private mortgage insurance (PMI). Luckily, other mortgage products offer as low as a 3.5% downpayment (FHA) or no money down, such as VA and USDA loans, so long as you qualify.

Closing Cost: Aside from the downpayment, mortgage closing costs are fees and expenses you pay when you secure a loan for your home. These fees can vary by lender and where you live. Typically the costs will range between 2 to 5 percent of the loan amount and may include title insurance, attorney fees, appraisals, taxes, credit reports, application, and more.

Property Taxes: These are taxes paid to your local municipality where you live. The taxes help pay for public amenities like schools, roads, and local infrastructure. In California, real property taxes are based on a real property's purchase price. For instance, if you buy real property in California, the assessed value equals the purchase price. The assessed value of the real property can rise with inflation every year, which is the change in the California Consumer Price Index. Others may pay their property taxes yearly, but most property taxes are pre-calculated by the mortgage lender and added to your monthly mortgage. It is the T on PITI (Principal, Interest, Taxes, and Insurance)

Homeowners Insurance: It is the last I on PITI. The lender requires every homeowner who has a mortgage to have homeowners insurance. The cost is added to your monthly mortgage payment to the bank. Depending on where you live, additional coverage may be required, such as hazard insurance, flood insurance, fire insurance, additional dwelling coverage for ADU or carriage house, and personal liability insurance if you use part of your home for business. Check with your local home insurance provider on what type of insurance you need for your home.

Other Expenses: If you live in a planned community with shared amenities, whether a single-family residence, townhouse community or condo complex, the community may come with a Homeowners association fee (HOA). These fees are separate from your monthly mortgage. Depending on your HOA, these fees are paid monthly, quarterly, or yearly. Remember to check with your lender when purchasing a property with HOA fees since this affects your purchasing qualifications.

When buying a home, planning is critical, and working with a reliable real estate professional and a reputable lender is the bottom line. Homeownership provides a sense of stability and community. When renting a house, you go through a qualifying process and pay your monthly rent. Similar to buying a home, through a qualifying process, a bit more in-depth and other fees are involved, and you pay your monthly mortgage just like rent but your building equity. While renting seems comfortable for now landlord can raise the rent or sell the property while you're contributing to your landlord's equity. On the other hand, homeownership brings both tangible and intangible benefits, tax benefits, provides a sense of stability and pride in ownership, and builds equity in the long run.