Loans, Fees, and the Real Cost of Owning Your Home
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We know this may come as a shock, but that home that’s for sale for $350,000 will actually end up costing about $575,000 over time. How? Between the interest rates, insurance, property tax, and the PMI, things add up quickly when you’re a homeowner. This doesn’t even begin
to cover the cost of maintenance, upgrades, and furnishing. Just do the research on the real cost of owning to know what you're getting into.
When Spending Equals Saving
Let’s break down how that cost of that home purchase to understand how to better save money during the purchase
process. If you’re like most homebuyers, you’re probably looking to use a smaller down payment (3.5%-5%) and that’s your first mistake. You’re anxious to have your own space, but without putting a solid 20% down, you’ll be forced to not only take out a larger loan to cover the difference, which results in paying more in interest throughout the years, but you’ll also be required to take out private mortgage insurance (PMI), to protect the banks if you default on payments.
The Deal on Down Payments
That’s just a single aspect. The interest in this example was based on 4.125% interest rate, over 30 years. If you paid more than the required $2292 minimum per month, you’ll be able to slowly decrease the number of years on your loan, as well as the interest, which decreases the total overall cost. If you were to put a 20% down payment on that same house, your monthly payments would only be $1809 per month.
To understand more about the costs and breakdown of your mortgage, check out the many mortgage calculators available on the internet. Most of them will break down how much of the principal is paid each month, versus the amount paid towards interest.
Research as much as you can until you feel like you really understand what the real cost of owning is. Look for areas where you can save, and try to take advantage of programs to help with down payments. Then, before you invest, do the math. Enjoy your home buying journey!
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