What are the fees associated with buying a new house?

amother

Tue, Nov 25 2014, 12:36 pm

To make a long story short, we've been renting for a really long time and the rent just keeps getting higher and higher. B"H my parents have told us that they are willing to pay for the down payment towards a house, but no other expenses. Right now, I have no savings at all, but I am able to make the mortgage payments. Aside from moving costs, what are the other costs involved in closing on a newly built house? I am buying it directly from the builder, if that makes a difference...

amother

Tue, Nov 25 2014, 12:55 pm

The big one is closing costs. My closing costs on a house that was $455,000 were about $17,000.

However, owning a home comes with many expenses. If you do not have any savings, then you are not ready to own a home. If there is some blip, and you cannot make your payments, well, then you will lose your house. You need a cushion, even if it is a new house that shouldn't need repairs right away.

sky

Tue, Nov 25 2014, 1:31 pm

I never bought a newly bought house.
But know people did and my impression:

Taxes may be very high (I'm in Lakewood and typically taxes on a NEW house start at 9,000 - 10,000 per year)

New Houses tend to need lots of New stuff - because no one lived there before - and the builder doesn't add finishing touches that a previous owner may have and you may take for granted:

- mezuzas
- curtains\shades for all windows
- small things that the builder may not put in in kitchen and bathrooms or elsewhere (toilet paper roll, light timers, ceiling fans, etc)
- Shelves in closets
- Paint (many builders do not paint the walls because they house settles and they recommend doing it after a year)

nyer1

Tue, Nov 25 2014, 1:38 pm

I don't see how you can buy a house with NO savings, even if someone is footing the down payment bill.

closing costs can actually be put INTO the mortgage, but it depends on the cost of the house how much that would be.
generally you need about 6 months backup of savings in case something is broken or needs to be repaired. think heating, lighting fixtures, leaks, etc.
I don't think it's wise to have NO savings and go into buying a house.
keep in mind that property taxes are not a set fee, they can go up every year!

mommyla

Tue, Nov 25 2014, 2:37 pm

sky wrote:

New Houses tend to need lots of New stuff - because no one lived there before - and the builder doesn't add finishing touches that a previous owner may have and you may take for granted:

- mezuzas
- curtains\shades for all windows
- small things that the builder may not put in in kitchen and bathrooms or elsewhere (toilet paper roll, light timers, ceiling fans, etc)
- Shelves in closets
- Paint (many builders do not paint the walls because they house settles and they recommend doing it after a year)

This. Mezuzas alone will cost several hundred dollars, depending on how many you'll need!

I'd also add furniture (to fill up rooms that you may not have had before - a guest bed, a kitchen table, an extra freezer, a desk, etc. - all the things that you always wanted "when you have more room") and home maintenance supplies (lawn mower, tools, etc.). Does the house include appliances? Will you want to upgrade anything? Also, keep in mind that your utilities will probably cost more, and taxes and home insurance can be a killer.

It's not a good idea to buy a house when you have no savings at all. Even new construction (especially if it's in Lakewood - a lot of the new homes are poorly built) can have unforeseen issues that are not the builder's responsibility. What if your car needs a pricey repair? What if someone needs stitches or surgery? What if your washing machine goes kaput? What if your taxes go up significantly? You need money to fall back on so that you don't default on your mortgage.

I say this as someone who bought a house within the last two years and had plenty of expenses - house related and otherwise - crop up over the first year.

amother

Tue, Nov 25 2014, 3:10 pm

I really appreciate all the advice. Thanks.
So to answer a couple of them, the closing costs would be added to the mortgage. Taxes of the house are going to be paid from the basement rental. I have mezuzahs from my house now that I needed to put on because the previous people who rented the house I live in took them. I'm not picky at all, and don't mind paper shades until I can afford real ones, nor do I care about upgrades. I live in a big rented house now, and it's not filled with furniture either, but that doesn't bother me. We pay for lawn mowing now as well. My electric/gas is comparable as the houses are the same size. My reasoning for buying is that it is literally costing me more to rent and that is money being thrown into the garbage. We also BH are covering our expenses with a little bit extra leeway each month, we're just not putting it into savings.
There is the factor of a major expense that will set us back, but is that enough to keep on renting at a higher price and throwing money into the garbage? I'm not sure.

mommyla

Tue, Nov 25 2014, 3:16 pm

What are you doing with that little bit of extra leeway? I'd really be wary of buying until you have a cushion that you can live off of for at least three months (I think that's the "rule") just in case.

Also, just btw, there may be a problem removing mezuzos from your current house. Our rav said that we couldn't take ours along. We paid over $1000 for new ones.

Did you figure your closing costs into your monthly budget? Is it still less than rent with all that?

We rented for way too long too, and felt like you do - throwing money out - but now that we're in a house for a while I'm glad we waited until we had comfortable savings. You really just never know when you'll need that extra buffer. How long would it take you to build up some decent savings? Cut back as much as you can, save that "extra leeway" and you may have enough of a cushion in less time than you'd think.

self-actualization

Tue, Nov 25 2014, 4:32 pm

I'm going to stick my neck out and agree with the OP.

If you don't buy a house, you are subject to rapidly rising rental costs, as well as the possibility of eviction.

If you do buy a house, you can more or less lock in your monthly payments. I don't have a basement rental, but in my neighborhood they go for a lot of money and that can pay for OP's property taxes (of course the basement could also lie vacant, or have nightmare tenants, so I wish you a lot of luck and please exercise care in selecting tenants).

Plus, house prices generally go up, so while OP's parents can afford the down payment now, they might not be able to afford it in 3 years, let's say, when the OP becomes financially better off.

Additionally, every payment that the OP makes will build equity in her home, as opposed to throwing money down the drain.

Lastly, the mortgage interest payments and property tax payments are tax deductible, which will save OP money on her taxes (assuming that she is earning money and paying income tax).

Many people will say that buying a house was the best decision they ever made.

But the real question is: if OP's parents can afford the down payment, could they possible also be counted on in case something unexpected comes up? Also, OP, why don't you just ask your parents if they are comfortable with you entering into this situation?

bookie

Tue, Nov 25 2014, 4:34 pm

mommyla wrote:

Afaik you are not allowed to remove mezuzos

sky

Tue, Nov 25 2014, 4:34 pm

Sounds like you have it figured out. If you are moving from a house the similar price then there shouldn't be too many surprises.

Taking the mezuzos isn't so simple - so you may want to look into that. However if the landlord will be painting in between or something like that then it may make it easier.

You may also need a cushion just in case you can't rent out your basement immediately. (If you are in Lakewood that shouldn't be an issue, but you never know)

sky

Tue, Nov 25 2014, 5:09 pm

If its Lakewood it is unlikely that you will be without a tenant for too long (but I did hear the market is shifting, someone who just put an apt on the market said for some reason now there are a bunch of apts advertised and the price went down slightly - but there is still a tremendous need and always will be)

Regarding a delinquent tenant - its always possible - but not so likely. If it does happen it is tough because most apartments are not legal so evicting is hard. (My friend was renting to a couple where the father in law was paying the rent, but wasn't paying. Couple refused to pay themselves. Then they got divorced and took time to move out and they were out almost a year rent).

Tova

Tue, Nov 25 2014, 6:54 pm

asp40 wrote:

I will also add, you might have difficulty qualifying for a mortgage. When you get a mortgage they want to know exactly where your money is coming from. You have to be able to afford the home on your own, not through gifts. When we bought our home, we had to submit tons of paperwork about how we got the down-payment, how we would cover closing costs, etc. . .

A gift letter should take care of that (where the parents can sign that the money they are giving is a gift and not on loan.)

GoldFlowers

Tue, Nov 25 2014, 7:27 pm

self-actualization wrote:

Agree with this. If OP's parents are willing and able to help out in case of an emergency and if OP can reasonably expect to pay for the expenses of a home and if the bank is willing to give the mortgage, then buying a home is definitely a better option.

Rent in my area has literally doubled in the last 10 years and seems to be sticking with that trend. Locking in your mortgage payment while your income presumably will rise will be most beneficial long term.

OP, you probably should try to go into emergency financial mode (spend for must haves only) for the next few months to build up the savings everyone is talking about. That way, you'll have the your house and also the savings that you need.

Frumdoc

Wed, Nov 26 2014, 8:02 am

Some financial backup for emergencies, such as major leak, electrical emergency etc, although less likely in a new home and should be insured for number of years by the builder.

They say to save 6 months mortgage in case of disaster.

Don't rely on tenants, they can cause more problems than benefit, and may not pay the rent, or you may not find reliable ones. And gaps between tenancies are common.

Think about insurance etc. Speak to a financial planner. Overstretching yourselves to own a house is often not necessarily the best long term plan.