By Janet Siroto
Jan 25, 2022
Buying a home is very likely the largest and most important purchase you will ever make—and the prospect may seem more daunting today than ever.
Odds are, you’ve heard that the housing market is blazingly hot right now. People are picking up and moving in record numbers, yet with the number of listings down 27% from a year earlier, buyers are caught up in bidding wars and ballooning prices.
But let’s take a breath: If you’re an aspiring homeowner, it’s easy to get caught up in the hype and drama. Instead, let’s focus on facts and figures so you can get your bearings and set some goals that, with some patience and preparation, are realistically within reach.
If you’re hoping to buy a house soon, here are the basic numbers you need to know—including how much a home costs today, how low your down payment can go, a sneak peek at hidden fees many homebuyers forget to factor in, and more.
How much does a house cost today?
According to the latest research by Realtor.com®, the median house price in the U.S. is $375,000. Of course, that will vary dramatically based on the area where you’re hoping to buy, the home’s square footage, age and condition, and other variables such as whether it’s a waterfront property.
The price of homes has shot up 10% over the past year—much more than that in some especially hot areas—due in large part to high demand and low inventory. While such a double-digit increase can be discouraging, it’s not a sign that you should sit on the sidelines and pray that prices drop before you get out there.
In fact, the Realtor.com 2022 housing forecast anticipates that the housing market will slow down somewhat from the frenzy seen a year earlier. That’s good news for buyers, although make no mistake, you will still face some stiff competition.
“The 2022 housing market will continue to be a seller’s market with fast-moving homes and rising prices,” says Realtor.com Chief Economist Danielle Hale.
In other words, waiting could cost you even more. And in the same way you can’t time the stock market, you can’t time the housing market, either. If you’re ready to buy now, it makes sense to move forward.
How much do you need for a down payment?
Few pay for a house in full—that’s what mortgages are for! But there’s a lot of confusion over how much money you really need to put down on a house.
Odds are, you’ve heard that the gold standard is to put down 20% of the price of the house. On a $375,000 home, that amounts to $75,000.
“Today’s real estate market is so competitive that coming in with a full 20% down payment will strengthen your offer on a home,” says certified financial planner Tanza Loudenback. That said, “first-time buyers don’t have profits from the sale of a home to parlay into a new down payment, so they’re usually starting from square one.”
The good news is that a 20% down payment is nice but unnecessary.
“Buyers with strong credit taking out a conventional loan can put down as little as 3%,” notes Loudenback, who’s based in Los Angeles.
There are a variety of programs that help out aspiring homeowners who have low or no down payment available. Here are three important ones to consider:
- FHA loans: These loans are insured by the Federal Housing Administration and help homebuyers who typically can’t qualify for a conventional mortgage. The program is designed to secure financing for those with low income and little savings. Borrowers can put down as little as 3.5%, provided they have a credit score of at least 500. One added cost they’ll need to incur, however, is FHA mortgage insurance, which varies from 0.45% to 1.05% of the loan amount.
- USDA loans: Offered by the U.S. Department of Agriculture and backed by the agency’s Rural Development Guaranteed Housing Loan Program, these loans help buyers with moderate or low income purchase property outside cities. Some of their most enticing features include low or no down payments, lower than standard interest rates, and looser qualifications for income and credit history. (Borrowers typically need a minimum credit score of 640.)
- VA loans: Backed by the U.S. Department of Veterans Affairs, these loans offer veterans financing without a down payment. (Yes, your read that right: 0% down.) What’s more, no private mortgage insurance is needed and they are quick to close. There are different requirements to be eligible depending on your service.
Are there additional costs to buying a home?
It’s not just your down payment that you have to save for, however. Too often, prospective homebuyers sock away just enough for the chunk of change they put down. Then, surprise, other expenses pop up. Other expenses always pop up.
To help you prepare, here are the biggies.
Closing costs: These fees are associated with processing a mortgage and might be heftier than you imagine.
“Closing costs can range from 3% to 5% of the loan amount, depending on the state, lender, and loan type,” says Loudenback. “On a $300,000 loan, for example, closing costs would range from $9,000 to $15,000.”
Wondering what all that money goes toward? Here’s a rundown:
- A loan amount origination fee, which lenders charge for processing the paperwork for your loan
- A fee for running your credit report
- A fee to assess and underwrite your creditworthiness
- A fee for the appraisal of the home, which makes sure its value syncs up with the loan you have applied for
- A fee for a title search to make sure there aren’t any liens on the property that could interfere with your ownership of it
The good news is you’ll know ahead of time what you’re expected to pay, because lenders are required by law to give you an estimate of your closing costs within three days of receiving your mortgage application.
The bottom line: If you’re aiming for a down payment of 20%, you’ll really need more like 25% of the purchase price in cash to close the deal.
Private mortgage insurace: This insurance, also known as PMI, is usually added when homebuyers put down less than 20%. A PMI policy reflects the fact that you are buying a home with a relatively small investment, and it protects the lender if you were to stop making payments. The cost is usually 0.3% to 1.15% of your home loan.
Before agreeing to a mortgage, find out how your PMI will be paid. Typically, it’s paid monthly (possibly rolled in with your monthly mortgage payment) or upfront at closing.
Property taxes: These taxes average around $2,471 per year, but they vary widely based on your state. For instance, New Jersey has the nation’s highest average taxes, at $8,362, while Rhode Island has the lowest, at $4,272. Taxes will also depend on a particular property’s location, size, and other factors.
HOA fees: If you buy a condo, townhouse, or other home with shared amenities like a parking lot or community swimming pool, your home may belong to a homeowners association, or HOA. And if the HOA hires service providers to maintain these public areas, the convenience comes out of your pocket, averaging a minimum of $250–$300 per month.
Yes, these fees add up, but if you see them coming, you will be well-prepared when it comes time to buy your first home.
Source- https://www.realtor.com/advice/finance/how-much-does-it-cost-to-buy-house/
