How much does it cost to buy and own a house? Consider all the expenses

As a first time homebuyer, budgeting for all the expenses associated with a home purchase is an integral part of the home-buying process. There are more costs to consider than just your down payment and mortgage. Making sure you are prepared for closing costs, property taxes, utilities, and post-purchase renovations is a key factor in being truly prepared to purchase your first home. Here we've compiled a list of expenses first-time homebuyers need to make sure they include in their budget. Down payment If you plan to finance your home purchase you will have to pay a down payment. Down payments generally range anywhere from 0-20% of the purchase price, depending on what type of financing you acquire. A standard financing option will likely include a down payment of 5-20%, whereas an FHA loan may go as low as 3.5%. In the years since the housing crash of 2008, zero down payment loans are rare with the exception of physician mortgage loans. Finding and working with a trusted local lender is the best way to fully understand what financing option will work best for you. Your lender can help you determine how much to put down to balance your payment factors of the overall monthly payment, cash reserves, and mortgage costs. It is generally recommended to put down at least 5 percent. In a competitive market, an offer with a low down payment mortgage financing may be considered subordinate to a higher down payment offer. Property Taxes It is important to understand that in Michigan property taxes on a home you are looking at can be much lower than what you will actually pay post-purchase. Property taxes only go up by the rate of inflation, capped at 5%, each year but once a home is sold the taxes are reset to the assessed value, this is known as a pop-up tax. The Michigan Department of Treasury provides a property tax estimator to help prospective homeowners understand what their taxes will likely look like post-purchase. Your lender will also ensure that you know what your property taxes will be. Good lenders and real estate agents make sure to go through, in detail, what the holistic costs of homeownership will be, but it is never a bad idea to enlist the help of a financial planner or accountant to act as another set of experienced eyes on your financial situation. Renovations Depending on your tastes and the state of the home you are purchasing, you will need to budget for initial post-purchase renovations. Common renovations new homeowners often do right off the bat include painting, putting in new flooring, updating appliances, cabinetry, fixtures, and window treatments. Often times sellers paint their home in neutral colors before they list to make it look more open and fresh. Many buyers will want to transition to colors that match their tastes. It makes sense to get an understanding of the costs of these renovations before making the decision to purchase homes that will need these updates. Your real estate agent and home inspector can often give you accurate estimates of these costs as well as refer you to trusted vendors that they and their clients have used in the past with good results. Home Maintenance After the initial renovations are done, you will want to budget for yearly home maintenance and upkeep. It is recommended that you budget between 1-2% of the purchase price for yearly home maintenance. This means that for a $250,000 home, you would save between $2,500-$5,000 for yearly maintenance and repairs if possible. Condo communities often include exterior maintenance in their HOA fees, whereas most if not all maintenance fees associated with a single-family home will be yours to cover. Common exterior maintenance costs for single-family homes include yardwork/upkeep, landscaping, gutter cleaning, roof repairs, snow removal, and chimney cleaning. Common interior projects include window cleaning, carpet cleaning, plumbing, and electrical work. These costs will obviously vary year to year, but having a "rainy-day" fund for unexpected maintenance projects is highly recommended. Whether it be a weather-related emergency, such as frozen pipes that burst, or a project related to the age of the home, like replacing the HVAC system or roof, it is important to have funds put away for both expected and unexpected yearly maintenance. Utilities Utility costs can really surprise the first time homebuyer. The nationwide average is $2,964 a year, but this varies greatly depending on where you live and the size and age of the home you buy. In a cold location where the heat runs 9-months out of the year, as it sometimes does in Michigan, you may need to budget more for utilities. Older homes will also cost you more. Not only do they have appliances that are less energy-efficient than newer homes, but they often suffer from drafts and insulation issues that you won't have to worry about in new construction. When buying a home this is something to keep in mind. The price tag on new construction may be higher but once you factor in utilities, renovations, and maintenance you may actually be paying a lot more in a year for an older home, even one that has been fully renovated.  Closing Costs Closing fees include attorney fees, appraisal fees, inspection fees, and document preparation fees. When you are comparison shopping for lenders they will give you a breakdown of the estimated closing costs you will incur. Don't be afraid to ask your lender and your real estate agent questions about what your closing costs will look like. Good lenders and agents will be upfront and communicate when it comes to helping you understand your costs and obligations every step of the way. With new construction, many builders will require you to pay seller transfer fees, seller title insurance, and administrative fees.  Make sure to get a full list of builder expenses you will be asked to pay before signing a new construction contract. Lender closing costs on a hypothetical $250,000 purchase with a 3-5% down payment would run about: Loan Origination: $995.00 Appraisal: $460.00 Credit Report: $55.00 Tax Service: $81.00 Flood: $10.50 Title Insurance: $737.50 For a total of $2,339.00 Insurance If you finance a home purchase you will be required to carry homeowner's insurance, and you should have it even if you purchase your home with cash. It is recommended that you get a replacement policy versus a policy that pays you the depreciated value of the items lost in an accident involving your home. The national average for an HOI premium is $1,132, but you can save a lot of money by shopping for discounts. You can receive discounts for purchasing a home security system, for working from home, and for bundling your home and auto insurance. If you live in a flood zone or on the water you may be required to purchase flood insurance as well. If you live in a condo community you may need to purchase a liability rider for personal accidents that occur on your property. These insurance costs are important to ask about and budget for upfront so that you aren't surprised by an un-planned insurance requirement post-purchase. Good agents and lenders will make you aware of these costs as you are shopping for homes. Ultimately, understanding the costs associated with purchasing your first home is a burden you do not have to bear alone. By working with the right real estate agent, lender, home inspector, and financial advisors, you can be sure that you are aware of all of the costs associated with your home purchase upfront. Keep this checklist of expenses in mind during your preliminary planning, and make sure to ask detailed questions to all agents and lenders you are interviewing. Knowledge and experience are key components to look for in trusted advisors in any business, including real estate. If you have more questions about the home buying process or would like to start your home search, contact us and visit our website for more information.  

Thinking About Building A New Home?

What An Agent Does For You That The Builder Won't A real estate professional is an expert who can advocate on your behalf throughout the process when building a home. Agents help you understand key steps, like choosing upgrades and managing negotiations while staying within your budget from start to finish. Your agent knows local builders and can help you compare based on the quality of materials, timeframe, builder accessibility, and hidden costs and fees associated with new construction communities. Your agent can walk you through the design studio to help you understand the costs for upgrades that the builders will be trying hard to sell you. The Bottom Line There are a lot of costs involved in building a new home that doesn't present themselves upfront in the list price. Initial decisions such as position within the neighborhood and choosing the floorplan and elevation make a big difference in building costs. If you work with an agent they will help you understand these costs from the get-go. This way you can manage your budget and know with confidence what you can afford. From there, your agent will stay by your side as an advisor and expert negotiator who will work with you and the builder to make sure all aspects of the transaction and building process stay on track.  Their loyalty fiduciary duties belong to you and not to the builder. In the end, your agent is paid a commission through the builder, so this is no extra cost to you. All of these factors are key in making sure you are equipped with the best knowledge and are getting the most for your money. Given the extended time it takes from start to finish on a new construction transaction, an agent becomes a pivotal guide if things get tricky down the line. There are a lot of new construction projects in the works in Southeast Michigan through a number of different building companies. We've worked closely with builders throughout the years for clients and are available anytime to answer questions you may have about the pros and cons of new construction and to help you compare neighborhoods and builders. To schedule, a free, no-obligation phone consultation fill out the form below or call us directly at 734-845-9900.

A Comprehensive Approach To Buying A Home

If you are shopping to purchase a home, historically high interest rates may be scaring you off.  We want to make sure that our buyers and sellers are seeing the whole picture and making the best financial decisions for their future. If you want the best results make sure you are buying a home for the right reasons and are following a comprehensive approach that considers both financial and personal factors. Housing Affordability One of the big factors to consider when deciding to buy a home is housing affordability. Housing affordability in March 2024 is down over 7.7% nationally compared to a year ago, according to NAR’s Housing Affordability Index, which measures whether a typical family earns enough income to qualify for a mortgage loan. Increased mortgage rates and inflation are why housing affordability is decreasing so rapidly. Mortgage Interest Rates Jessica Lautz, NAR's Deputy Chief Economist, notes that although interest rates are slightly below the historical average and inflation has slightly decreased, rates are still above 7%. This poses challenges, especially for first-time homebuyers. However, it's important not to let rising interest rates deter you from buying a home. Waiting for rates to drop might not be realistic, especially if you have other reasons to move, such as downsizing, a job change, or a growing family. Economic and financials are only part of the homeownership equation. Use our Comprehensive Home Buying process to consider all the factors when buying a home. A Comprehensive Home Buying Process 1. Determine why you want to own a home. Determine your reasons for wanting to own a home. Discuss your goals, needs, desires, and concerns with your partner to ensure alignment. Our clients often cite these reasons: locking-in housing for the long haul, proximity to schools, having space and freedom to fulfill their plans and dreams (including the dream of owning their own home), financial asset building, and being close to family. After meeting my wife and I, My first realtor said to us, “Oh, I see, you want TWO homes”. Before starting the home shopping journey, we hadn’t talked about what we wanted too much. When we did, it turned out we had different needs, risk tolerance levels, and ideas for the perfect home. It's important to discuss wants, desires, and fears related to buying a home. You and your partner will probably need to compromise! 2. Get serious about your budget Track your income and expenses to find out and fully understand where your money comes from and goes. Then, create and STICK TO your budget.  Use financial tracking software to track your income and expenses. Be sure your budget includes categories for retirement savings and, for homeowners, a plan to set aside at least 1% of the cost of your home per year for home improvements, maintenance, and repairs. We often find there is a financial optimist and pessimist in each household. One person hawks the bills while the other wants to spend and fearlessly forge ahead. The optimist will tend to underestimate important expenses while the pessimist can be too conservative. A working budget and income/expense tracking system can get both parties on the same page. Then, you can begin to see which homes you can comfortably afford, how much debt you are currently carrying, and how much savings you have to put towards a downpayment, closing costs, moving expenses, and new home renovations. Beware: there are many hidden homeownership costs that first-time buyers don't account for. Your lender will tell you how much the bank is willing to loan you; you have to decide how much debt to take on and the number can be very different. 3. Agent Up! Hire an experienced, local real estate agent and mortgage lender. After 20 years of selling and buying homes for clients, I have seen a lot! I have some great stories, a few horror stories, and a lot of perspective on the industry and market in Ann Arbor. There are great agents and lenders in Ann Arbor who know how to help you purchase your dream home. Your job is to connect with a few and hire an agent and lender you are comfortable with. What do you need to find out about a potential realtor? Is this person a good listener? Do they have time for you or do they always seem unavailable? Can they negotiate well for you? Do they have resources to offer and are they connected in the community? Can they offer a systematic approach to buying a home? Do they have good ideas to share that you have not thought about? Will they answer all of your questions? Do they have testimonials and references available? Use your agent to get at least two mortgage lender recommendations. Your agent will have a rapport with many lenders and will offer the ones that get the job done on time, are available to consult and answer questions and have a great track record.  4. Shop for your home. Finding a great home becomes much easier once you lay the foundation using the steps above. Many home shoppers just start at step 4 and fill in the other steps as an afterthought. Finding a lender after the fact, improper research, and not understanding all the expenses will cause problems. Helpful Resources For Planning And Budgeting Dave Ramsey’s 5 Steps to buying a home that won’t bust your budget guides you on how to calculate a “pre" and "post" home purchase budget. Use this to determine how much you can truly afford in a mortgage payment and taxes. The Michigan Property Tax Estimator: This tool helps you calculate the estimated property taxes or home at a given price. Provided by the Michigan Department of Treasury it is one of the most accurate at-home resources for calculating taxes. Piper Partners Blog: How Much Does It Cost To Buy A House? - Consider All The Expenses: In this comprehensive guide to buying a house, we help identify and calculate some of the hidden costs of a real estate transaction such as loan origination fees, down payments, inspection fees, and closing costs. Piper Partners Neighborhood Pages: We offer dedicated pages for 100's of neighborhoods. You can view active and closed listing data and subscribe to updates. Piper Partners Blog: 6 Questions To Ask When Interviewing a Buyers Agent : This post gives some example questions to ask agents as you interview them; Questions that challenge their local area knowledge and expertise! Piper Partners Blog: The Ten Reasons People Buys And Sell Homes: In this article, we will go through the 10 reasons people make a move and our advice for each situation.