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Knowing how to calculate the cost of buying a home may be confusing, especially so for first time home buyers. To focus on the down payment, closing costs and monthly mortgage payment without considering hidden costs may result in your paying thousands more than you bargained for. This article will help you calculate the real cost of buying a home.

* Hidden Costs - What You Don't Know Will Hurt You

Consider the first year of home ownership when calculating the cost of buying a home. First, hire a licensed home inspector that has neither an affiliation with the home owner nor the real estate broker. For a fee, inspector will perform a detailed examination of the condition of the home and, in a written report, will highlight items that require repair or replacement. The most significant items that may need attention include the roof, heating and air-conditioning, appliances and structural damage caused by insect infestation. If the home is over twenty years old, changes in municipal code may require updating the electrical or plumbing systems prior to closing the sale. (A note of caution - if the homeowner refuses to allow a third party inspection of the home, it's time to move on.)

* Monthly Costs - There's More to Homeownership than the Mortgage

When calculating the cost of buying a home, you must also add monthly costs such as utilities, lawn services, trash removal, property tax and, in some cases, homeowner's association fees. Ask your realtor to obtain copies of the last 12 months expenses from the homeowner.

* The Negotiation - You are in Control

Before you make the offer, consider the selling price of comparable homes in the neighborhood. Is the asking price realistic? The sellers may have an emotional attachment to the home that, in their minds, increases the value. It doesn't. Your lender will use "comps" to determine the value of the home. You should too. Using your home inspector's report as your guide, subtract the repair costs from the asking price. The result will be your offer to purchase the property. (An alternative approach is to require the home owner to make the repairs prior to the sale.)

* Financing the Deal - Lender's Fees and Closing Costs

Now that you have calculated the hidden costs of buying a home, let's move on to the discussing the costs associated obtaining a mortgage and actually purchasing your new home.

Lender fees will be documented in their Good Faith Estimate. Here is a list of the most common fees and closing costs associated with obtaining a mortgage:

Down Payment
Plan on making a down payment of 20% of the value of the home. Special loans are available for putting less down, however, be aware you will be required to pay additional fees to purchase Private Mortgage Insurance (PMI). The insurance policy protects the mortgage lender should you default on the loan.

Credit Report
Issued by the three major credit reporting agencies, EquiFax, Experian and TransUnion.

Appraisal Fee
Costs associated with an appraisal of the home by a third party.

Origination Fee
This charge by the lender is to cover expenses in preparing and submitting the mortgage loan.

Title Search
This fee is for costs associated with confirming seller is the legal owner and there are no outstanding claims such as overdue taxes or liens.

Inspection Fee
Yes, another one, but this home inspection is for the lender's protection.

Prepaid and Escrow Fees
Typical mortgage loan fees included in this group are Homeowner's Insurance, Real Estate Taxes and PMI.

Now that you know how to calculate the cost of buying a home you are well equipped to avoid any financial surprises along the way. So what are you waiting for?

Learn more about this author, Rob Whitley.
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