When preparing financially for homeownership, many people only consider the down payment and price of the property then find themselves surprised by all the other costs that come with the purchase of a new home in California. The mortgage is not the only number to consider in your saving goals. Here are a few other hidden costs to be aware of that arise when buying a home.
While many buyers are familiar with closing costs, they can be surprised by how much they end up paying. Closing costs are, mostly, covered by the seller, but the buyer pays on average between 2% and 5% of the home purchase price toward them. They include the price for:
- Cost of inspection
- Lawyer fees
- Recording costs
- Appraisal fees
- Document fees
- Surveyance fee
- Title cost
- Sales brokerage commission
- Mortgage applications
- Home warranty
The above list is not exhaustive but gives a clear idea of what to budget for. Costs usually vary by jurisdiction, and many buyers often choose to bundle these costs into the home loan. For a clearer idea of what you’ll be paying when it comes to buying a home, talk to your realtor.
California is known for having some of the highest taxes in the nation. Regrettably, California keeps true to form when it comes to property taxes. Only nine other states have a higher property tax. Expect to pay an average of 0.74% of a property’s assessed fair market value as property tax per year.
Homeowners Insurance And Mortgage Insurance
Homeowners insurance is often included in your monthly mortgage payments. It tends to be a manageable number, but it helps to be aware it’s there. The average homeowners’ insurance cost in California is about $1,224 per year. Mortgage Insurance, however, is insurance that is much more noticeable.
Mortgage insurance can either be a PMI (private mortgage insurance) when dealing with a conventional loan or MIP (mortgage insurance premium) for FHA loans.
PMI with a conventional loan happens when the borrower puts down less than 20% for their down payment. The cost of PMI can vary according to the size of your home loan, your credit score, and other factors. You can use a PMI calculator to estimate the cost of PMI.
MIP is only for FHA loans. The majority of FHA home loans require an upfront mortgage insurance premium plus an annual premium, no matter the size of your down payment. The upfront premium is 1.75% of the loan amount, and the annual premium ranges from 0.45% to 1.05% of the average outstanding balance of the loan for that year. Your MIP is paid in monthly installments for the life of the FHA loan if you put down less than 10%. If you can put down over 10%, you’ll pay MIP for 11 years.
Moving Costs when Buying a Home
When the time comes to physically move all your worldly goods into your new home, you may be surprised by the price tag. Moving within 20 miles will likely cost $1,400 or so. A cross-country move to California could cost upward of $5,000. Price varies due to the number of your possessions and the distance you have to travel to your new home. Moving costs are often determined either by the overall weight of your items or by volume in cubic feet. It helps to think carefully about what you’re putting into the moving truck.
Depending on where you choose to live, you may end up paying monthly fees to your community’s housing association (HOA). These fees can range from $75 to $800 depending on the amenities offered by the community. Your HOA fees cover shared maintenance in the community or things such as a communal clubhouse, pool, or tennis courts.
You may have noticed the term Mello-Roos in some of the listings you considered while buying a home. This unique-sounding term is a fancy way of saying an additional tax. Whether or not you pay Mello-Roos in California depends on when and where your home was built. Older properties tend to not have Mello-Roos, whereas newer properties will. Mello-Roos is more formally known as the tax for the Community Facilities District. This tax is included in your general property tax. Mello-Roos occurs when the district you choose to live in has chosen to seek public financing through the sale of bonds to finance certain public improvements and services, such as infrastructure, schools, police, or parks. The Mello-Roos you pay will then be used by the district to make the payments of principal and interest on the bonds.
We Can Help You Prepare
The process of buying a home can feel complicated with all the details and surprises, but we’re here to help. We can get you the right loan for your situation and help you navigate the financial aspects of homeownership. If you’d like to learn more about what to expect with homeownership reach out to us at (877) 699-0353.