Home prices in the United States continue to drop amid a slowdown in demand tied partly to rising mortgage rates, but homes are still less affordable now than at any time in the past 30 years. For potential buyers, it means paying close attention to their budgets before putting in an offer.

                By                    Vance Cariaga

On Monday, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported an 18.0% annual gain in June. That was down from 19.9% the previous month and marked the third straight month of decelerating growth, which could point to further weakening in the U.S. housing market.

“The deceleration in U.S. housing prices that we began to observe several months ago continued in June 2022,” Craig Lazzara, managing director at S&P DJI, said in a press release. “Relative to May’s 19.9% gain (and April’s 20.6%), prices are clearly increasing at a slower rate.”

But even with price growth slowing down, Lazzara said it’s important to note that “deceleration and decline are two entirely different things, and that prices are still rising at a robust clip.”

Even though home price growth is slowing down, that shouldn’t be the only thing you look at when budgeting for a new home purchase, said Steve Reich, Chief Operations Officer at Finance of America Mortgage.

He also recommends that buyers who don’t plan to stay in their homes for more than a few years get an adjustable-rate mortgage that might offer a lower, fixed interest rate during the initial years of ownership, helping lower monthly mortgage payments.

“This option may be ideal if you plan to sell your home before the loan switches to an adjustable rate,” Reich said.

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The main items you need to budget for when buying a home include the following, according to the Ally Financial website:

  • Down payment: Although the standard used to be 20% of the purchase price (except for first-time buyers), that’s no longer the case. Many lenders offer a variety of financing options. Of course, the more you put down, the less you’ll pay in interest over the life of the loan. And if you put down less than 20%, your lender might require you to get private mortgage insurance.
  • Appraisal fee: This is usually a requirement when you get a mortgage, and the cost typically ranges from $550 to $1,050 for a single-family home or condo.
  • Inspection fee: The average inspection cost is $325, according to Ally.
  • Closing costs: These are typically 2% to 5% of a home’s purchase price, and include lender fees, private mortgage insurance, and third-party fees such as title search fees, title insurance, attorney fees and tax certification.

Beyond those costs, you’ll need to budget for homeowner’s insurance and the cost of setting up utility services. In some cases, you might also have to pay homeowner association dues. You should also budget for any furniture, appliance and home goods purchases you need to make, as well as any maintenance/remodel work that needs to be done before you move in.

Longer term, you’ll need to budget for property taxes, which are typically based on the value of your home and due once a year. This cost varies by location and home type, but Ally Financial pegs the typical cost at about $2,400 a year.