How Much House Can You Actually Afford?

Buying a house will always be more expensive than you think it will be. You don’t just have to think about the purchase price; you also have to think about credit report fees, private mortgage insurance, property taxes, and more. Today, we’re going to look at the biggest bundle of costs–closing costs.

The highest cost you’ll have to pay on closing day is called “closing costs,” which is technically a bundle of different costs. Closing costs typically range from 3-6% of the total value of the property, but there can be variation outside of this range. At least three days before closing day, as the buyer, you will get a Closing Disclosure outlining the exact amount you owe on closing day in closing costs.

The application fee for any loans you applied for, whether or not you were approved, will be included in the closing costs. Additionally, depending on the situation, you may be responsible for an attorney or closing fee. Ask your trusted real estate professional to know whether or not to expect this. Another fee to keep in mind is a credit report fee. If you’re getting a loan, you will have to pay this fee, although it will not be expensive. You can also expect to see homeowner’s insurance fees and property taxes included in your closing costs.

Before you get the Closing Disclosure, it may be difficult to estimate how much you will pay in closing costs; however, your real estate agent can help you make a closer estimate. Once you receive the Closing Disclosure, you must check each line, ensuring each cost aligns with your agreement. You only have a few days to fix any errors, so don’t put it off. It's challenging to get money back that you’ve already paid.

Adding 3-6 % of the total asking price will allow you to come up with a dollar amount that is more accurate to what you will be required to pay. Therefore, the homes you are looking at need to be 3-6% cheaper than you initially thought. While 3-6% may seem small, remember that 6% of $200,000 is $12,000. That’s quite a bit of money!

Finding out at the last moment that you don’t have enough money to close the deal will be stressful, disappointing, and could get you into trouble. So be prepared by doing the math and keeping up with costs as you get closer to the closing date.