Newlywed Survival

Surviving the first few years of marriage.

Understanding the Cost of Buying a House

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Understanding the costs of buying a home #CapitalOneHome

Your home is probably the most expensive purchase you will ever make as a couple. Because it is, the majority of us require a mortgage loan to help us pay for it. When you get that mortgage loan you sign a promise to repay that loan along with giving the lender something of value if you do not make those payments. In this instance, your collateral is the house. This was a very scary thought for my husband and I. Before we purchased our home, we made sure to sit down and understand what exactly is involved in buying a house. Understanding the terminology and costs involved helped us feel more comfortable about our purchase and allowed us to be excited about our first home together!

I recommend checking out the Capital One Home Loans Online Neighborhood. It is a free online resource where you can learn all about home buying. They have easy-to-understand articles and helpful videos, as well as information about Capital One’s Home Loans offerings.

What types of loans are available? #CapitalOneHome

Watch this video on the Capital One site.

To help you get started, here are some of the main terms used when buying a home.

Mortgage

Mortgages come in all shapes and sizes, and have pros and cons, but starting with an understanding of what’s available is important. Your mortgage loan payment generally consists of four different parts and is called a PITI payment. Those four items are:

Principal

The principal is the part of the mortgage payment that is applied to the original amount borrowed. For example, if the house you are buying costs $100,000 and you are paying 5% down (or $5000), the principal of the loan you are then applying for would be $95,000.

Interest

The interest is the amount that the lender charges for lending money. It is the cost of actually getting the loan.

Taxes And Insurance

The taxes and insurance portions are used to pay your property taxes and your homeowners insurance. Having these payments escrowed (or held on your behalf) on a monthly basis prevents you from having to pay a large bill at the end of the year. The lender estimates what these figures are at the beginning of the loan and at the beginning of each year thereafter. These funds are saved in an escrow account and when the bills are due, the lender pays them for you.

My husband and I decided to save and pay these on our own. There was just something about making a smaller payment each month that felt better for us. You will need to decide what is best for you as a couple.

What type of mortgage is right for you? #CapitalOneHome

Get more info on the Capital One site.

Upfront Costs

You also need to keep in mind that there are other costs involved in purchasing your new home. These sums are paid before you ever take ownership of the home.

Down Payment

The down payment is your first investment in the house. The minimum amount of the down payment is determined by the lender and is usually 3-5% of the purchase price. If you have more money, you can make a larger down payment and reduce the amount of the principal you will be borrowing and lower the monthly mortgage payment as well.

Closing Costs

Closing costs are not always paid at the closing and include some fees you may be asked to pay in advance. These fees include credit report fees or appraisal fees. Closing costs also include money paid to the lender to review the loan, money paid to the city, county or state to transfer taxes. There are also recording fees and fees paid to professionals that provide services to make the sale go smoothly such as attorneys and escrow agents. These fees can range anywhere from 2-7% of the purchase price.

Escrow/Prepaids

At closing, the lender will usually collect an initial payment of two to three months of taxes and insurance to set up your escrow account. They may also require prepaid costs for interim interest and various types of insurance premiums. That interim interest payment will be for the number of days between your settlement date and the beginning of the following month.

Get more info on the home buying process. #CapitalOneHome

Get more info on the home buying process.

Buying a home is an important process, but certainly not a simple one! All of the terminology and costs involved can get a bit overwhelming. Capital One’s new online resource lays the groundwork with a glossary of terms you should know, an overview of the loans available and more. Sit down with your spouse and go through the Capital One site. Make sure you both understand the process so you can enjoy purchasing your newlywed home!

What scares you most about buying your first home?

I was selected for this opportunity as a member of Clever Girls and the content and opinions expressed here are all my own.

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Comments

  1. There are a LOT of costs to buying a house that many people don't think about when shopping. It always amazed me at how different the taxes on property in the same area could be.

  2. What a great post! I think first time buyers focus on the purchase price of the house but often don't realize there are closing costs, insurance, tax and all the other things you so simply describer in your post. All first time buyers should read this!

  3. I feel real fortunate that my husband had already bought our home well before we met. The terms and the work of buying a home are tough. I don't envy anyone who goes through it!

  4. It's so important to cover all your bases before buying a home for the first time. It is a great piece to your financial puzzle, but not something to be jumped into without planning!

  5. These are great tips! Many people just think their mortgage is what they owe on the house but it is so much more and it fluctuates as taxes and such go up.

  7. This is really great information. I wish I had known all of this before be bought our first house.

  9. These are great tips, thanks for sharing them. I went through home buying in 2005, was so proud to be buying a home so young. I had it all figured out, but little did I know all that was involved and then went on to have two more kids while also being the "bread winner" of the home, it all crumbled. Next time around I will be researching and this post is very educational so no one has to go through what I went through!

  11. I remember how exciting and scary it was when we bought our home. It is a HUGE ordeal/undertaking and definitely shouldn't be taken lightly. This is great information!

  12. I remember the excitement of buying our first house. We have learned so much since then.

  16. We are actually in the process of buying a home. It is our second, but it was years ago that we bought before, this was all new to me again. Great tips!

  17. Whether it's your first home, or your fourth (as is ours), buying a home can be really stressful! The cost is unbelievable. The thing that surprised me the most was the little incidentals, like $400 for the home inspection.

  19. Great tips! Buying a house can be overwhelming, especially the first time you buy. It is easy to let emotion overrule reason, which can be a costly mistake!

  21. This is great advise! It is so easy to get caught up in all the different options when shopping for a home and forget what you really wanted to start with.

  23. Yes, great list - so many hidden costs. Plus all the money you need/want for things once you actually have the keys.

  24. Great info! While buying a house is an exciting experience it can be stressful, too. This will be helpful to those who are looking to buy a house.

  25. Buying a home is so expensive! There is a lot involved... fees, interest, insurance, down payments.... it is really daunting for home buyers, especially if it is your first home. At least with a resource like this you can be prepared as to what to expect.

  26. Thank you so much for posting this! We want to get into a house next year. I asked my friends on Facebook for advice for first-time home buyers and I basically learned which of my friends are realtors. The myth that you've helped debunk is that you don't just need to save up for a down payment. There is so much more involved. Of course, I already knew that the more you can bring to the table up front, the better. I'm just looking forward to getting out of this overpriced apartment. I'm ready to have a back yard. It goes without saying that the money doesn't stop there. I'll be responsible for all repairs and maintenance, too, but my S.O. is intent on getting a house and has committed to doing whatever it takes for care for it.

    • Ha! Now you have some realtors to contact, right? We were so happy to get out of our apartment and into a house. We did a between step and rented a house first. After that, we knew we were ready to take on all of the outdoor care. Plus we loved having a backyard!

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