First-time homebuyers have a lot to learn about buying a house. Luckily, once you’ve purchased your first house, you’ve learned all you needed to know to make the next move a breeze. One of the most significant things first-time homebuyers don’t know about is the hidden costs involved in buying your first home. We’ve put together this list to help you recognize these costs so you can budget properly for your first home.
1. Home Inspection
Once you submit an offer on the house and the seller accepts it, you’ll need to make sure there’s nothing wrong or unsafe with it for you and your family. Most mortgage lenders require you to have a home inspection. You can work with one of their partners or find a certified home inspector to examine the property for you before closing.
If there are any hidden issues, whether mechanical or structural, you can negotiate the repair costs with the seller before the deal is finalized. If you don’t have a home inspection, you are responsible for paying the full cost of fixing them. Once the closing is complete, you may not return to the seller and demand money to fix something wrong with the house. It is your responsibility to make sure the home is up to your standards before closing.
Depending on where you live, home inspections usually cost anywhere from $200 to $600 or more. This cost is out of pocket and nonrefundable if the deal with the home seller falls through.
Inspection may not always be mandatory, but the extra money spent will help you take precautionary measures. Repairs can cost tens of thousands of dollars, while the cost of a home inspection is significantly less.
2. Appraisal Fee
All mortgage lenders will require an appraisal to make sure the home they give you a loan for is worth its genuine cost. You’ll get a home appraisal before finalizing your mortgage agreement with your lender, in which the lender hires an appraiser to assess the home and property value. The appraiser will document various features of your home and research prices of similar homes sold in nearby neighborhoods.
Even though this service is required by your mortgage lender, you as the homebuyer will still have to pay the appraisal fee. This cost can be anything from $250 to $600, depending on where you live and the size of the property.
3. Escrow Account
Some mortgage lenders require an escrow account along with the mortgage loan agreement. The money that goes into the escrow account is used by your lender to pay for ongoing expenses on your behalf, such as homeowner’s insurance, private mortgage insurance (PMI), and property tax. If you are required to set up an account, you might have to make an initial deposit at closing time
The fee for this account will be paid to your lender each month to protect the lender by ensuring your homeownership expenses are paid on time.
4. Closing Costs
While you should always have enough money saved for a downpayment, no matter how much your lender requires you to put down, you’ll need to save additional money for your closing costs. Closing costs range from 2% to 5% of the overall home purchase price. These costs include:
- A loan origination fee
- Attorneys fees
- Prepaid HOA fees
Before you decide to purchase a home, make sure you have enough for your downpayment and closing costs.
5. Home Maintenance & Repairs
Most first-time homebuyers can’t afford to purchase a house that’s in pristine condition. Costs can slowly begin to creep up once you’ve moved into your home. If you’ve ever rented an apartment before, you know your property management pays for maintenance done in your apartment, so if something stops working, you don’t have to pay for it. The exact opposite is true when you own your home. If something breaks or you find something wrong with the house after you move in, you have to pay to fix it.
Along with repair costs, you’ll also have to maintain your home. This means landscaping, shoveling snow, weed control, and fixing any broken appliances. No appliance lasts forever, so you should always have some money saved up for home repairs and maintenance in the event of your laundry machine or dishwasher fails.
6. Moving Costs
In all the excitement of buying a new home, worrying about the cost of the loan, the purchase price of the house, and more, first-time homebuyers forget one of the simplest expenses: moving costs. If you decide to hire a professional moving company or choose to rent a truck and do it yourself, there will be costs. If you choose to move, you’ll need to budget for a moving truck and any additional tools like a dolly.
No matter what you choose to do, make sure you leave room for the move in your budget. Moving costs vary depending on how far you’re moving and exactly what you’re moving. Moving a whole room of exercise equipment will cost more than moving a room full of pillows.
As a renter, some of your utilities, such as gas, were probably covered by your property management, a renting benefit. As a homeowner, you don’t have such a luxury and will be required to pay all of your utility bills. You can expect your heating and cooling bills to increase as well, since heating and cooling a larger space requires more energy and/or gas. The utilities you’ll have to pay for include:
- Water and Sewer
Are you Ready to Buy a Home?
While most first-time homebuyers save money for the down payment of a home, you must budget for all other expenses as well to ensure you can afford to buy your first house.
It may help you feel more financially comfortable to find a house that’s priced lower than your maximum loan amount so you know you can afford to take on additional expenses. When it comes to costs, make sure to ask the professionals around you, including your realtor and mortgage lender, so you know what you need to pay and when.
About the Guest Author: Matt Casadona
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.