- Steps to getting a mortgage infographic
- How does a mortgage work? video
- Your credit score: A key part of your financial identity infographic
- How much home can you comfortably afford? video
- Budgeting to buy a home infographic
- Planning for extra costs when buying a home video
- What makes up a mortgage payment video
- KEY TAKEAWAYS
Planning for extra costs when buying a home
Homes are expensive, but it isn't just the mortgage. Learn to look beyond the sale price to see—and plan for—the extra expenses.
Planning for Extra Costs when Buying a Home
Whether you’re a first time homeowner, or you’re just refinancing, it’s always good to have a plan for the extra costs that can come with your new mortgage.
Before you even think about buying a home, you’ve got to make sure your credit score is in good shape. Because those three little numbers make a very big difference when it comes to what kind of interest rate you can get on a loan or how much you’ll need for a down payment.
And if your score isn’t great, you may not even be approved for a loan at all. So go ahead and check your credit report by visiting annualcreditreport.com, or get your score by contacting one of the major credit bureaus like Equifax, Experian or TransUnion. If you find that you fall into the lower range, it’s not the end of the world, because there are lots of ways to get back on track. Watching some of our videos like, “Building Credit and Keeping Yours Healthy” or “What Really Goes into Your Credit Score,” can give you some great tips.
When you're buying a home, there are all kinds of costs to consider. First, there's the down payment. The more you put down the better. In fact, a great money habit is to put 20% of the cost of the home down. Because not only will it help you get a better interest rate and lower your monthly payments. It will also prevent you from having to pay for what's called Private Mortgage Insurance, or PMI. PMI is a type of insurance that lenders require you to pay if you don't have 20% to put down. It protects them if you default on your loan. And it doesn't come cheap. PMI can end up costing you around 2% of your total loan amount depending on how much you put down. This payment can be required upfront, or is sometimes rolled into your monthly mortgage payment as an additional monthly fee. The good news is, that with some loans, you won't have to pay PMI forever. But you should check with your lender for more details on that.
If you don't have 20% to put down, you're not necessarily locked out of buying altogether. There are a variety of government programs that may let you put as little as 3.5% down. But you should carefully consider all of the monthly and annual costs that come along with owning before you make a move. Because having enough to swing a down payment won’t help you if you can’t make your monthly mortgage payments down the line or if you’ve depleted your savings and your furnace suddenly breaks. For more information on these types of programs, watch our video "Understanding alternative mortgage options."
Another thing to plan for is closing costs. That can include things like title insurance, appraisals, and attorney fees. Closing costs can run you an additional 3% to 7% of the total loan amount and that’s also on top of your down payment, so be aware. And let’s not forget about those unanticipated expenses like increased energy costs, new appliances, homeowners’ association fees, or simply the cost to keep your yard looking nice. So make sure you’re prepared to budget for all of these things. It’s also not a bad idea to start an emergency fund just in case something pops up that you weren’t expecting. We have a video that can help you with that called “Create a Safety Net for Life’s Unexpected Events.”
Knowing and understanding the extra costs that make up a new mortgage is always part of a great foundation to have when it comes to home ownership. So now that you’re ready, why not take the next step and learn exactly what goes into the cost of your monthly payments with our video “What makes up a mortgage payment.”
The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its partners assume no liability for any loss or damage resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.