Big, colorful ads that promote mortgage payments for just $900 month are enticing, especially for first-time buyers. After all, that's probably less than many people are paying in rent. But as anyone who's bought a home knows, that $900 payment is probably just principal and interest. In other words, it's only a portion of what you'll pay every month. So how much does it cost to buy a house, anyway?
Good question. Here's a breakdown.
Principal and interest
Otherwise known as P&I, principal and interest generally represent the bulk of your monthly payment, and are determined by factors including your down payment, interest rate, home price, and term/length of your loan. But a number of other items must be considered to determine your "real" monthly payment.
A home loan will not be approved by the bank without insurance in place. Costs vary depending on your location, with the lowest annual premiums in Oregon at $576 and the highest in Florida at $1,991. The average annual premium across the country for 2015 is $952, which breaks down to about $80 per month. You can check valuepenguin.com to see average costs in every state.
Property taxes on your home are determined according to your local tax rate and the assessed value of the home (You can get more info about the particulars on Investopedia.com.). Your real estate agent or lender should be able to give you an idea of what the taxes will be for a specific house. You can also get a good estimate by looking up your local tax assessor's office for the county in which you are buying and researching the tax rates of similar homes.
Property taxes don't just range per state, but also by county and city. In one high-end area of Los Angeles (based on a sales price of $1,000,000—come on, it's L.A.!), you have similar houses in three neighboring areas with different annual property tax totaling: $10,874.22 in Beverly Hills; $11,792.21 in West Hollywood; and $12,204.41 in Los Angeles, said Luxury Homes Los Angeles.
Nationally, the "average American household spends $2,089 on property taxes for their homes each year, and residents of the 27 states with vehicle property taxes shell out another $423," said WalletHub. Hawaii is at the low end with an average of $482 and New Jersey the most expensive at $3,971.
Once you know the principal, interest, taxes, and insurance, you can determine a more accurate monthly payment on a house. But, there are still a few more things that need to be considered.
If you put less that 20 percent down on your home, expect to also pay Private Mortgage insurance (PMI).
"Private mortgage insurance fees vary, depending on the size of the down payment and your credit score, from around 0.3 percent to about 1.5 percent of the original loan amount per year," said Bankrate.
The site's example assumes a sales price of $180,000 at .44 percent, which comes out to $792 annually or $66 per month.
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Many neighborhoods have a homeowner's association (HOA) that enforces community rules and provides upkeep of amenities and common areas, at a cost to homeowners. Depending on the size of the community and the number of amenities offered, monthly dues can range widely, as much as several hundred dollars per month.
Upkeep and maintenance
Many people forget to include this in their calculations, thinking that the upkeep and maintenance costs will be comparable to what they are already paying for their rental. But let's be honest. They're just not. You're going to want to paint and buy furniture and change out your countertops and hang drapes. You'll need to change your air filters and buy a new washing machine or refrigerator or knock down walls. And, stuff will break. If you have a home warranty, it should take care of the big stuff. But you'll still have the cost of service visits to contend with, and a monthly or annual cost just to have the policy. If you're trying to figure out how much money you'll have to set aside for maintenance, consider this:
"Obviously, there's no way to forecast these costs for sure," said Banking My Way. "But mortgage-data firm HSH Associates suggests homeowners assume they will come to about 1% of the property's value—every year.
You may not currently be paying for landscaping if you're renting, but that will most likely change as a homeowner. Expect to pay anywhere from $20 a week and up depending on your location and the size of your yard. Or, you can hit Home Depot, buy your own lawnmower, and join the Saturday Morning Brigade of homeowners who like to take matters into their own hands, literally.
Know your exact down payment, interest rate, terms of your loan? You can use an online calculator like Calcunation.com to figure your monthly payment, but remember that the exact payment will be determined by your lender.