Buying your first home is a big milestone. It’s an exciting process, but one you probably also have a lot of questions about. From, “How much can I afford to buy a home,” to “Do I have to put 20% down to buy a home?” and more…we’ll walk you through the process of figuring out how much money you need to buy a house.
Where Do You Want To Buy A House?
The cost of buying a house depends on where you’re looking to buy. Average home values vary across the country and within different parts of a state or city. For example:
- $411,304 for New York state and $622,026 for New York City
- $383,063 for Florida state and $560,000 for Miami
- $728,134 for California state and $901,291 for Los Angeles
And in Michigan, where West Shore Bank is located, the average home value is $210,135.
Of course, these are just average sale prices. Certain towns and neighborhoods may be cheaper or more expensive than others. The condition of the house is also a factor, as well as its proximity to water (where applicable). For example, let’s look at a few cities in Michigan.
Along the lakeshore
- Traverse City: $392,637
- Ludington: $227,828
- Hart: $159,000
- Frankfort: $395,825
- Manistee: $197,039
- Onekama: $325,000
- Scottville: $179,000
- Muskegon: $152,837
And, on the other side of the state, the average home value in Ann Arbor is $463,726 and Detroit’s average home value is $63,038.
As you can see, the question of where you want to buy a house is the first step in determining how much it will cost to buy a house. Real estate is all about location and prices fluctuate accordingly.
How Much Do You Need To Put Down To Buy A Home?
Thankfully, you don’t need to pay the full price of your home purchase at closing. You can put a certain percentage down (known as your down payment) and apply for a mortgage to cover the rest of the cost.
What is a mortgage loan?
A home mortgage is a specific type of loan used only to finance the purchase of real estate or to refinance an existing mortgage loan.
Mortgages are secured by the value of your home. This is why your lender will appraise the property before approving your loan–you can’t borrow more than the estimated market value.
A mortgage is also a term loan, which means you’ll pay monthly installments over a pre-determined length of time (your mortgage term). You can always make extra payments towards your mortgage to pay it off earlier than planned and pay less in interest over time.
Whether those monthly payments are the same amount or not will depend on the type of interest rate you choose.
Fixed vs. Adjustable-Rate Mortgages
After you choose the type of mortgage loan to apply for, you’ll need to choose between a fixed or variable interest rate.
- Fixed Interest Rate: The rate you get when you apply for your mortgage is the one you’ll keep throughout your loan term. If interest rates rise in the future, you’ll keep your existing rate. If they fall, you can refinance your mortgage loan to get a lower rate.
- Adjustable-Rate Mortgage:ARM Loans can have different terms, but generally there is a fixed introductory rate that is lower than average rates. After that period, your interest rate can adjust up or down according to the benchmark rate it’s tied to. There are caps on how much it can adjust in each adjustment period. Your mortgage payment amount will vary depending on your interest rate.
20% Down vs. Low Down Payment Mortgages
Conventional mortgages are the most popular type of home loan. They usually require a 20% down payment. Putting at least 20% down will also free you from the requirement to have Private Mortgage Insurance, an extra monthly cost that comes with putting down less than 20%.
Low Down Payment Home Loans
You may be eligible to put down less than 20% with these mortgage programs.
- FHA Mortgage: Insured by the Federal Housing Administration. Offers down payments as low as 3.5%, low closing costs, and more flexible credit requirements.
- USDA Rural Development Loans: Finance up to 100% of the purchase price in eligible rural areas. Must meet income requirements. Read more in our blog "What is a USDA Rural Development Loan?"
Down Payment Assistance Options
The Michigan State Housing Development Authority (MSHDA) offers down payment assistance loans through lending partners like West Shore Bank. Borrow up to $7,500 statewide or up to $10,000 in select zip codes, including some of the communities in West Michigan. A down payment assistance loan is a second loan.
Borrowers must complete a Housing Education class first.
What Other Factors Impact The Cost of Buying A Home?
In addition to paying principal and interest on your mortgage loan, understand the other expenses that may be included.
Mortgage Interest
Estimate your monthly mortgage payment. The more you put down, the lower your payments will be.
Private Mortgage Insurance
If you are unable to put 20% down, you may need to purchase Private Mortgage Insurance.
Property Taxes
You can usually view the current assessment on your home’s online listing.
Homeowner’s insurance
Homeowner’s insurance
You must have a homeowner’s insurance policy before final approval of your mortgage loan.
Homeowner’s Association
If you buy a house in a community with a Homeowner’s Association, you may need to pay a monthly HOA.
Costs Associated With The Homebuying Process
Plan for the following costs as you begin your homebuying journey.
- Appraisal fees: This is the cost of determining your home’s market value. A professional home appraiser will visit the house to inspect it in person, look at comparables, and prepare a report.
- Inspection fees: While not required, it’s recommended that you have a professional home inspection completed after you make an offer. This will alert you to any major issues with the house that may change your decision or give you an opportunity to negotiate further on price.
- Title Insurance: Protects homebuyers and mortgage lenders from financial loss due to defects in a property title.
- Closing costs: Any additional fees required to complete the real estate transaction such as attorney fees, escrow funds, property taxes, etc.
Once you close on your first house, make sure to update your monthly budget to include taxes, maintenance and repairs, utility bills, and other costs associated with owning a home.
Consult with a Mortgage Expert
Have you started saving for your down payment and getting your finances in order to buy a house? Have questions about the homebuying or mortgage process? Our local, Michigan-based mortgage lenders are here to help and to assist you in reaching your homeownership goals. Contact us today or apply for a mortgage online!
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