Five Costs to Consider Before Buying Your First Home in Nashville

Buying anything these days can be stressful. Buying a home is probably the most stressful. For most, purchasing a home seems nearly impossible, particularly in Nashville where prices continue to rise. But, it doesn’t have to be and I’m here to remind you that anything is possible so long as you have a plan. So, let this be the start to your home-buying plan: five costs to consider when buying your first home.

We’ll go over:

• how much house can you afford?

• earnest money and inspection fees

• your down payment

• closing costs

• after closing costs

How Much House Can I Afford?

Thinking about buying a home can be overwhelming, mostly because it will be the most money you’ll ever spend on one thing in your life. It’s tough to compute hundreds-of-thousands of dollars at once because we don’t often see that in our bank accounts at any given time. The most important factor in determining how much house you can afford is assessing how much money you have coming in every month versus what you can comfortably afford spending on a mortgage (and your other debts). Your credit score, how much you have in savings for a down payment, and the interest rate for your mortgage are also important numbers to consider when thinking about affordability. The lender you choose to work with will help you navigate all of this before pre-approving you for a loan.

To kick things off, here’s a good online home affordability calculator to put your monthly budget into perspective for any zip code.

Earnest Money and Your Inspection Fees

After you are under contract on your dream home, the first round of costs you’ll pay are the Earnest Money deposit and your upcoming home inspections.

Earnest Money, also called Trust Money, is the first down payment you’ll pay toward your home purchase. This is usually 1% of the purchase price, and is due a few days after your offer is accepted. The exchange of this money is routed in tradition, and basically tells the seller that you are serious about purchasing this home and your commitment to doing so.

Your home inspections are the next costs to consider in the home-buying process. The size of the home and what you choose to get inspected are reflected in this cost. Typically home inspections run between $500 to $1,000 and cover the basic home inspection, plus any add-ons you decide to do. Inspection add-ons may include termites, radon, sewer, pools, chimneys, and anything else you want to look into before committing to purchasing the home.

Your Down Payment

If you are financing (getting a mortgage), a common misconception is that you’ll need to pay 20% of the purchase price at closing. You don’t have to do this. If you do pay less than a 20% down payment at closing, you’ll be paying Private Mortgage Insurance to your lender. This amount is typically 0.5% – 1% of your loan amount per year, plus your monthly mortgage bill. Your monthly Mortage bill is the principle loan amount plus interest. Not paying 20% down at closing is okay, just realize you’ll be paying more over time. There are loan products out there that may not even require a down payment at all. The best way to shop around for these is to talk to your local lender.

Have you heard of the 28% rule?

When considering a mortgage, make sure your monthly payment (principle & interest) doesn’t exceed 28% of your monthly pre-tax income, and that your total debt doesn't exceed more than 36% of your monthly pre-tax income. This is called your debt-to-income ratio and will help you determine how much house you can afford.

Do you live in Nashville and have more questions about the mortgage process? Get in touch, I’ll connect you with great people who I trust.

Closing Costs

Closing costs are costs you pay at the closing table to finalize purchasing your new home. Think of these costs as the final hurdle to get your keys! They are typically 2% - 5% of your loan amount and include:

• closing fees - miscellaneous fees to process your closing like the settlement fee, preparation fee, E-doc fee, recording fees, title search, and the closing protection letter.

• insurance - title insurance protects against ownership problems (to make sure only you own this property). Insurance fees include the owner’s title insurance and the lender’s title insurance.

• taxes - transfer taxes are due from the seller to the buyer to transfer the property.

After Closing Fees

Purchasing a home will no doubt cost you a lot of money, and owning a home is no different. There are certain freedoms you gain owning your property, and it is the quickest way to building wealth, but you’ll need to keep-in-mind that the cost of maintenance and general quality of life will be ongoing. Along with annual county taxes, there is home insurance, utilities, and money you’ll need to have in reserves in case your HVAC stops working or you need a new roof. It’s a good idea to save at least six months of living expenses in an emergency savings account for when the inevitable happens.

You can opt in to purchasing a home warranty, which will save you some dollars here-and-there, and of course insurance will protect you in case there is a natural disaster. But, overall, anything that needs fixing or updating will be coming out of your pockets. But you know this…you just bought a house!

Here’s an example breakdown of how much it will cost to own your home in Nashville a year (Remember these are not exact costs, just an idea):

• Utilities: $4,975

• Maintenance: $4,283

• Home Improvements: $3,890

• Property taxes: $2,795

• Homeowners insurance: $1,516