Buying a House: How Much Can You Afford?

The purchase of a home is typically the biggest purchase most people will ever make. Consequently, buying a home is the expenditure that has the biggest impact on your finances. The last thing a homebuyer wants is to start dreaming about owning that special home, and then realize that they can’t afford to own it. To avoid this trap, consider the following cost factors in addition to the purchase price.

  1. Down Payment

The size of your down payment can depend on the type of financing you use. For example, the traditional, minimum down payment for an FHA loan is 3.5%, but a seller financing agreement (a.k.a. land contract) could require you to put down 20% or more — whatever the seller decides.

Down payment is typically the biggest upfront cost of buying a home, so it makes sense to consider it first.     

  1. Closing Costs

Just when you thought the down payment was all you needed to get keys to a new home, then in comes the matter of closing costs. According to Bankrate.com, the average total closing costs for a home in Missouri and Illinois are $1,926 and $2,079, respectively. Closing costs depend on the property you buy and its location. This resource from Zillow gives an excellent breakdown of the costs.    

  1. Homeowners Insurance

Also known as “hazard insurance”, homeowners insurance is required in all states and covers “unintentional damage or destruction by fire, smoke, wind, hail, theft, vandalism, or another similar event” (Nolo.com).

According to Investopedia.com, the latest statistics show that $1,034 is the average cost for an annual homeowners insurance premium. To help soften the expense, the premium can be paid in 12 monthly installments, and can often be included in your mortgage payment.    

  1. Mortgage Interest Rate

After sale price, mortgage interest rate most determines how much you’ll pay to own a home free and clear. The interest rate you receive depends on two main factors: Your financial qualifications (earnings, credit score, debt, etc.) and the type of mortgage you secure. To learn how much a specific interest rate would increase or decrease your base mortgage payments, use our free fixed rate mortgage calculator.    

  1. Property Taxes

Property taxes vary so widely based on the value of a home and its location, that listing the average cost doesn’t offer much guidance. For example, owning a $2 million property in Ladue, Missouri, would cost far more than owning a $200,000 studio apartment in Kirkwood, Missouri. Your realtor can provide you with a home’s property tax history before you make a purchase.  

  1. Necessary Improvements  

The home inspection will identify the majority of improvements that need to be addressed, and these improvements are often addressed by the seller, or certainly negotiated prior to closing. However, you may have ideas on certain improvements that you believe necessary to make to satisfy your personal tastes.  These too are added costs that need to be considered in the cost of purchasing a home.

Motivated home sellers typically fix problems after a home inspector uncovers them. However, if you buy a foreclosure property or a “fixer-upper” that’s sold as-is, you may have to pay for fixes on your own. If so, be sure to get cost estimates before you make a purchase.  For example, added expenses in a foreclosed home or a fixer-upper may include such items as: window coverings, (drapes & blinds), carpeting, fireplace screens, etc. 

Ready to Buy Your Home?

If you’re a first-time homebuyer or looking to upsize or downsize, learn more about all your mortgage options available at AECU or apply today by calling (800) 325-9905, or simply apply online. We look forward to hearing from you! 


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