Buying a house is a significant milestone in many people's lives, but it often comes with a hefty price tag. In this post, we will delve into my personal journey and the costs involved in purchasing a house. From down payments and closing costs to hidden expenses and long-term financial implications, we will explore the true cost of homeownership.
My wife and I embarked on our home buying journey after years of renting in Phoenix, Arizona and now Boise, Idaho. We were eager to move out of our rental and find a place we could call our own. However, before diving into the numbers, I need to emphasize the importance of understanding the numbers and applying financial planning to ensure a good purchase.
To give a clear picture, we need to break down the initial costs incurred during the home buying process. These costs include a $400 inspection fee, a down payment, closing costs totaling around $28,000, potential expenses for new furniture, immediate updates, and the often overlooked cost of time. In short, you need thousands, literally.
The best way to show this is in the closing disclosure. Documents that outlines the actual cost of purchasing a house. The house was priced at $500,000, but after factoring in the loan amount, interest rate, and additional escrow, their monthly principal and interest payment amounted to $3,143.56. The closing costs totaled $28,000, which included fees for appraisals, insurance premiums, property taxes, and more.
To complete the financial picture, you need the cash to close the deal. We had already put down a $5,000 earnest money deposit, and the total cash required at closing was $23,493.39. Additionally, he highlights the unexpected cost of paying off credit card balances to maintain a favorable debt-to-income ratio during the underwriting process. We pay these credit cards off anyway but they needed them shut down. Very odd but it worked out fine.
While the initial costs are significant, owning a home is a long-term commitment with an additional hidden expenses. Over the course of 30 years, our total payments would amount to $1.2 million, with $706,000 going towards interest alone. Recognizing the burden of interest payments, it is important to introduce a strategy to reduce the interest paid over time.
Using a mortgage calculator, we can demonstrate the impact of making one extra payment per year for the next 11 years. By doing so, we would pay off the loan in just over 20 years, saving almost 50% in interest, or nearly $300,000. This simple strategy showcases the potential for significant long-term savings and highlights the importance of proactive financial planning.
Our personal journey of buying a house sheds light on the true cost of homeownership. From the initial expenses to the long-term financial implications, it is crucial to approach this significant investment with careful consideration and strategic planning. By understanding the various costs involved and implementing smart financial strategies, individuals can make informed decisions and potentially save thousands of dollars over the life of their mortgage.