Homeowners association dues
Fees paid monthly to cover the maintenance and amenities of a condominium complex or neighborhood.
While buying a home is a big decision, there are also lots of small decisions to make along the way to homeownership. To help you navigate the process, we’ve gathered suggestions for avoiding some of the most common mistakes.
Include PITI (principal, interest, taxes and insurance) in your budget. Mortgage calculators will show you how much you'll pay towards Glossary Term: principal and Glossary Term: interest every month. Remember that you'll also have to pay Glossary Term: property taxes and Glossary Term: homeowners insurance. While you may not pay your taxes and Glossary Term: insurance monthly, it's a good idea to set these funds aside each month and factor these costs into your monthly budget.
Know how much cash you'll need at closing. When you buy your home, you will need to pay a Glossary Term: down payment and Glossary Term: closing costs. The down payment typically varies from 5% to 20% or more. Putting less than 20% down will typically require you to pay for Glossary Term: private mortgage insurance (see more on that below). Closing costs could be about 3% of the total loan amount, and will include charges such as loan origination fees, title insurance, and Glossary Term: appraisal fees.
Budget for private mortgage insurance. For Conventional financing, this is typically necessary if you don't put down at least a 20% down payment when you buy your home. If that's the case for you, you will likely need to pay private mortgage insurance (or PMI). Make sure you know how much this cost will be and factor it into your monthly home payment budget.
Research your utilities. If you're moving into a larger home than you're used to, a home that is newer or older than you're used to, or located in a climate that's hotter or colder than you're used to, ask your real estate professional if he or she can find out what the home's energy bills have typically been. This can help prevent being surprised by a higher utility bill than you're expecting. If you're moving into a new community, find out about water costs, as well.
Don't forget miscellaneous expenses. Be sure to budget for moving expenses, as well as additional maintenance costs. Newer homes tend to need less maintenance than older ones, but all homes require upkeep. If you're considering a Glossary Term: condo or a home with a Glossary Term: homeowners association (HOA), remember to include Glossary Term: HOA dues in your budget. In addition, keep in mind that you should have an "emergency fund" on hand to prepare for any unexpected changes in your income (like reduction in your wages) or unexpected expenses (like medical bills).
Manage your debt carefully after your home purchase. Sometimes your home will need new appliances, landscaping, maybe even a new roof. Planning for these expenses carefully can help you avoid one of the most common causes of missed mortgage payments: carrying too much Glossary Term: debt. It's important not to overextend your credit card and other debts so you stay current on your payments.
Know your credit score. As soon as you decide to start looking for a home, check your Glossary Term: credit report and Glossary Term: credit score with any of the three major Glossary Term: credit reporting agencies: Experian, TransUnion and Equifax. If you find any mistakes that need to be corrected, addressing these issues early will put you in a better position when it’s time to buy.
Find a responsible lender. When you choose a lender, pick someone you feel good about working with. They should listen to you and put your needs first, and they should be able to explain your home loan options in plain terms. It’s a good idea to interview potential lenders to find the one that is best for you.
Get prequalified for a mortgage before you start shopping. Knowing what you can comfortably afford will let you keep your search focused on the homes that are right for you.
Get Glossary Term: prequalified so you’ll have an estimate of how much you can comfortably afford before you start looking at homes.Footnote 1
You can also use our Affordability Snapshot, to help calculate a monthly mortgage payment you can comfortably afford.