When thinking about the cost of purchasing a house, most people think primarily about the price of a mortgage. This can be broken down into the parts of a mortgage payment.

If you are asking, “What are the four parts of the mortgage payment?”, take a look at this post, which breaks it down:

• Principle
• Interest
• Taxes
• Insurance

These are often summed up with the acronym, “PITI.” We also added in a fifth financial consideration:

• Homeowners Association dues

If you are considering these five components, you are already taking a more comprehensive look at the cost of buying a home than many other home purchasers.

This is still not a complete picture however. There are other one-time and continuing costs of homeownership to consider. Let's go over some of those now.

At the time that you buy your new home, you will need to be prepared for the following additional costs:

• Down payment. This is a portion of your mortgage which you need to pay upfront. It could range anywhere from 0-20%.
• Fees for appraisals and inspections. These can total to a few hundred dollars.
• Closing costs. These cover fees for processing, attorneys, and other costs associated with your mortgage. Most of the time, you can expect the closing costs add up to anywhere from 2-5% of the price of the property.
• Earnest money deposit. This is a type of security deposit based on the offer price, adding up to around 1-3%.
• The cost for initial repairs or upgrades. If you purchase a fixer-upper, you will need to be prepared for the cash outlay required to make the house livable.

Along with these expenses, do not forget that taking time off and transporting your possessions from your current home to your new residence will result in another financial hit.

You will also need to look at your savings make sure that you have enough to cover six months of mortgage payments if necessary. This is called “cash in reserve.” While this is not money you have to spend, it is something which lenders will look for before deciding to approve you for a mortgage. If you cannot prove you have access to these funds, they may decide you cannot afford to buy a home.

If you can afford all these upfront costs, that is a good sign that it might be time financially to buy a home. But you also need to be thinking about the future and the long-term costs you can expect to pay going forward.

Here is what you need to consider over the long term. First, there are the aforementioned “parts of a mortgage payment":

• Principle
• Interest (including mortgage insurance)
• Taxes
• Insurance
• Homeowner’s Association dues

Along with these, you can expect the following ongoing costs:

• Continuing costs for repairs and upgrades: Over time, even well-designed houses built of sturdy materials can develop issues. You may have long-term costs associated with plumbing and electrical issues, paint, roof repairs, pest control, and so forth.
• Costs associated with your yard or garden. There are probably strict expectations about the appearance of your property from the Homeowner’s Association. Keeping up with these means keeping up with yard care. This can entail purchasing tools and equipment are paying for services.
• Utilities fees: Unlike when you rent an apartment, you need to be ready to pay for water, heat, electricity, and even trash services.
• Rents: Why would you be renting if you have bought a home? This is a scenario which is becoming more common as more people turn to prefabricated and manufactured housing. You may own the building in which you live, but you may be paying rent on your lot.

Remember that these costs can vary quite a bit as time and circumstances change, so that is something to make sure you are prepared for.

We Can Help You Figure Out What You Can Afford

You now have a better understanding of not just the parts of a mortgage, but also the other costs which may be associated both with the home purchase process and long-term home ownership. If you still need help figuring out how much home you can afford, please give us a call at 317.255.0062. We can go over your finances with you and help you plan.