When preparing to buy your first home, the down payment and mortgage amount often get the most focus. Nevertheless, there are lots of additional fees and expenses that savvy homebuyers expect and budget for from the start.
Being aware of these hidden costs ensures there are no budget-busting surprises down the road.
Home Inspection
After having your offer accepted, one of the next steps is hiring an independent home inspector to thoroughly examine the property. They check for defects, assess the condition of systems and appliances, and document any necessary repairs.
You can expect to pay $300-$500 for a standard inspection. However, specialized tests for things like mold, foundations, pools, and more can each run another several hundred dollars. If serious issues are uncovered, you may need to negotiate with the seller on credits or repairs.
Homeowners Insurance
Lenders require you to take out a home insurance policy to protect from perils like fires, storms, floods, and theft. Shop around to compare plans that fit your property type, location, and budget. Factors like claim history, amount of coverage, and deductibles influence premiums.
Many first-time buyers forget to account for home insurance premiums in their housing budget. Depending on the amount of coverage selected, these can cost $800 to $2,500 per year.
Source: worthinsurance.com
Closing Costs
Closing costs encompass all fees charged by lenders and third parties to process, underwrite, and finalize your home loan. These are capped at around 3% of the mortgage amount for most conventional loans. On a $250,000 home purchase, this is up to $7,500 in closing fees.
Specific charges include origination fees, appraisal fees, credit check fees, document prep fees, underwriting costs, recording charges, and tax service fees. According to the experts at Mortgage Maestro, based out of Colorado, mortgage lenders can provide a detailed estimate so you know what to expect.
Land Transfer Taxes
In many jurisdictions, buying a home involves paying land transfer taxes, which are calculated as a percentage of the property’s purchase price. These taxes can significantly increase the total cost of buying a home and vary widely depending on the location and sometimes the buyer’s status (e.g., first-time homebuyer incentives).
It’s crucial to research the specific land transfer tax rates in your area and factor these into your closing costs. In some cases, there may be rebates or exemptions available, so exploring these options can potentially save you money during the home-buying process.
Prepaid Property Taxes
Your mortgage payment will include an escrow account to pay upcoming property taxes on your behalf. But at closing, you also need to prepay taxes covering the remainder of the current payment period.
So if the seller has already paid the $5,000 annual taxes a few months back, you might owe a $3,000 prepaid tax bill at closing to get caught up. This ensures no further bills come due before your escrow kicks in.
Home Warranty
Source: schaubteam.com
While not mandatory, some real estate agents strongly encourage buying a home warranty plan to cover repairs for home systems and appliances after closing. These plans provide a safety net by paying to fix or replace covered equipment like AC units, plumbing, electrical, heating and more in the first year.
Property Maintenance and Repairs
Owning a home comes with the responsibility of maintaining its condition, which includes regular upkeep and addressing repairs as needed. This encompasses a wide range of tasks from landscaping and pest control to servicing major systems like heating, ventilation, and air conditioning (HVAC).
While some maintenance tasks can be DIY, others may require professional services, adding to the expense. Unexpected repairs can also arise, such as fixing a leaky roof or a broken appliance, which can be costly.
Setting aside a portion of your budget for these inevitable expenses will help ensure that your home remains in good condition and can prevent more significant costs down the line.
Moving Expenses
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The physical process of relocating all your belongings represents a significant cost when buying a home. Do not overlook these expenses when budgeting for your exciting home purchase. Carefully weighing DIY moving vs hiring professionals can help minimize this major price tag.
Utility Setup and Monthly Costs
When moving into a new home, one of the initial steps involves setting up essential utilities such as water, electricity, gas, and internet services. These utilities may require a one-time setup fee and, of course, will add to your monthly expenses. The costs can vary significantly based on the location, usage, and service providers. Researching local utility providers and their rates can help you estimate these costs more accurately.
Additionally, consider energy-efficient appliances and sustainable practices to manage and potentially reduce these expenses over time. Budgeting for these ongoing costs is crucial for maintaining a comfortable lifestyle in your new home without unexpected financial strain.
Home Upgrades and Renovations
Source: build-review.com
Countless new homeowners discover needs or envision improvements they want to tackle shortly after moving in. But refinishing floors, opening up kitchens, adding bedrooms and baths, replacing siding, installing fences, and tackling other projects add up fast.
From minor cosmetic upgrades to major remodels, have a clear budget in mind for home modifications you may want now or down the line. Improvements often cost thousands to tens of thousands, depending on scope and quality.
Homeowner Association (HOA) Fees
If your new home is part of a community governed by a Homeowner Association (HOA), you will likely be required to pay monthly or annual HOA fees. These fees contribute to the maintenance and upkeep of common areas, and amenities like pools and fitness centers, and may include services like trash removal and snow plowing.
The fees can vary widely depending on the community and the services provided. It’s important to understand these costs upfront as they can impact your overall housing budget. Additionally, be aware of the HOA’s rules and regulations, as non-compliance can result in fines, further adding to your expenses.
Conclusion
From inspections to closing fees, taxes, warranties, moving, and repairs, make sure you map out all the one-time and recurring secondary costs that come with purchasing your first home. This ensures you start on solid financial ground as a new homeowner. Paying attention to the fine print prevents major money surprises behind that exciting purchase.
