The Balance compiled information on housing prices, closing costs, mortgage rates, and other fees connected with purchasing a home. We eventually agreed on a sum of two dollars. The first is the initial investment required to become a homeowner. This includes things like the down payment and the closing charges. The affordability index used by The Balance is based on a combination of this data and income data from the twenty-one major metro regions in the United States. We also compared current prices with those from the previous fall, when The Balance previously collated this information, in order to identify any trends.
A New House, On Average
In the United States, a new home will typically cost $43,874 upfront. All of the initial expenses have been included, from the first down payment through the closing charges and the first month’s payment. In order to provide a starting point for comparison, we have given a nationwide average; nonetheless, it is important to note that these expenses vary considerably by city and area. The first month’s expenses in Dallas and Tampa are just approximately $705 apart, but Tampa homeowners spend more on closing charges.
Payment in Lieu of Taxes
The initial sum paid upon closing on a property is called a “down payment.” A down payment can be any amount from zero per cent to twenty per cent or more of the purchase price of the house. While a lower first payment might seem more manageable, paying more of the loan principal upfront will result in lower overall interest payments. While some traditional mortgage lenders may only need a 3% down payment, we calculated a 10% down payment to account for potential savings. The majority of the up-front expenditures are taken up by the down payment regardless of where the buyer resides, as seen in the following table.
Transaction Fees
Closing costs, which might include things like appraisal fees, title insurance, prepaid property taxes, insurance, and interest, often amount to two per cent to five per cent of the home’s purchase price1. Points, which are a percentage of the loan amount and may be utilised to decrease your interest rate, may also be included in your closing expenses. The fees associated with closing might vary greatly from one place to the next. Closing expenses as a percentage of the buyer’s down payment are notably higher in Washington, D.C., Philadelphia, Baltimore, Seattle, and New York.
Extra Expenses
If your down payment on a property is less than 20%, private mortgage insurance (PMI) may be required by the lending institution.2 PMI covers the bank in the event that you default on your mortgage payments. PMI premiums are often rolled into monthly mortgage payments, although they may also be due at closing (FHA loans, for example, require an upfront PMI payment). The cost of private mortgage insurance (PMI) depends on the size of your loan, your credit history, and where your loan ultimately settles on the secondary mortgage market.
The cost of a house warranty (or extended warranty) is independent of these factors. This is not a warranty in the traditional sense, but rather an optional service contract that may, at your request, fix certain parts of your house. These can be renewed every year at a cost of $500 or more. On the other hand, there have been several reports of dissatisfaction from buyers. Warranties often have numerous restrictions and limits, and it’s possible that you’ll have to make a copayment for eligible products or service visits since they don’t cover more expensive repairs. A house warranty might turn out to be a waste of money for you.
Rising and Falling Housing Prices
We found that the average cost of buying a house in the spring of 2022 will be higher than the average cost in the fall of 2021 when the data was last produced by The Balance. After accounting for the down payment, closing charges, and the first month’s payment, our data indicated that the overall cost of purchasing a property in May was 9% more than in October. According to our estimates, however, closing costs decreased marginally in 2022 compared to 2021. Understanding how much money you can reasonably expect to spend on housing in a certain place is a crucial component of the puzzle.
The housing expense ratio is one indicator of whether or not a property is affordable in relation to the buyer’s other outgoing financial commitments. Affordable housing has a housing cost-to-income ratio of less than 30%, whereas unaffordable housing has a ratio of more than 30%.
In the United States, a new home will typically cost $43,874 upfront. According to The Balance’s Home Affordability Index, St. Louis, Baltimore, and Detroit are the top three most affordable large cities in which to purchase a home. The three most expensive cities in which to purchase a home are Los Angeles, San Francisco, and San Diego, according to The Balance’s Home Affordability Index.