House Buying: 6 Hidden Costs
The true cost of a home goes beyond the down payment - be prepared for extra expenses.
For first-time home buyers, it can be an exciting and overwhelming experience to finally purchase a home. Not only does a new homeowner gain their own place in the world, but they also begin to accumulate equity – creating financial security for years to come. In addition to your down payment and monthly mortgage payment, owning a home has other costs as well. If you are planning to buy a house, you should consider the following expenses:
It’s time to start the process of buying a home if you’ve decided to do so. You can buy your first home directly from the owner by following this guide.
Fees for home inspections
Prior to closing on a home, you should get a home inspection after your offer is accepted.
If you want to move forward with your purchase after your offer is accepted, you should have a home inspection performed. A house with significant problems shouldn’t cost thousands of dollars to repair. Home inspections vary in price based on the type of inspection, the location, and the square footage of the home. According to HomeAdvisor, most inspections cost between $200 and $400.
It is also worth considering a well, septic, or radon inspection, which tests for radioactive gases produced as uranium oxidizes naturally in soil, rock, or water.
Taxes on property
Property taxes should also be considered when buying a home. Due to the rising value of many homes, most of the country is experiencing an increase in property taxes. The property tax in your neighborhood can also significantly affect the cost of housing there. Remember that home sales can often result in a reassessment of taxes.
Mortgage and property deductions are several of the tax deductions you can take as a homeowner. Getting guidance from a tax advisor is a good idea.
Insurance for homeowners
Homeowner’s insurance is also something you should consider. In case of a severe event, this protects your possessions and your home. You must also factor it into your budget because your lender will require it.
Where you live will affect your homeowner’s insurance premium. Home insurance policies can be riskier in certain states. It is likely that you will pay more if you live in a hurricane-prone area.
Find out if bundling your insurance policies (using the same carrier for multiple types of insurance, including home and auto) makes sense for you by working with a local insurance agent. Several hundred dollars can be saved for some people this way!
Insurance for private mortgages
A monthly mortgage payment includes Private Mortgage Insurance (PMI). By doing so, you protect your lender from default. PMI is usually required for conventional loans with less than 20% down payment.
Mortgage insurance premiums (MIP) are required for loans insured by the FHA. Regardless of your down payment, you pay this with FHA loans.
Your credit score and assets also play a role in your mortgage insurance premium, along with your down payment.
ValuePenguin estimates that most mortgage insurance premiums range from 0.5 percent to 5 percent of the mortgage loan’s original amount.
The closing costs
The closing costs of a new home are another important factor to consider. During the closing process, lenders charge buyers fees for services they need to perform. In the end, you will have to pay a third party for many services necessary for the closing of your mortgage loan.
Here are a few possible loan transaction costs:
- Appraisal: A fair market price for a home must be determined by this method.
- Credit Report: In order to determine if you are eligible for a loan, lenders will review your credit report.
- Closing Fee: Title companies and attorneys receive this fee for closings.
- Company title search or exam fee: To ensure that your property is free of liens and problems, it goes to a title company.
- Title insurance: You are protected from someone challenging your ownership of the house if you have this document.
Furthermore, closing costs can vary based on the type and amount of your mortgage. According to Quicken Loans, 30-year fixed rates may not have the same closing costs as 5-year adjustable rates. You could potentially save thousands of dollars with seller concessions if the seller covers all or part of your closing costs during negotiations. Depending on the home’s purchase price, closing costs range from 2 percent to 5 percent. Remember that closing costs are paid upfront.
Maintenance and utilities
The cost of utilities, such as electricity, gas, and water, may need to be adjusted if you move from renting to owning. You will usually have to spend several thousand dollars on these expenses annually, but remember that once you own a home, you begin building equity. Keeping up with mortgage payments each month may not feel like you are saving any money, but you are building up the value of an asset, just like saving money. It is always better to have more equity in your home!
Additional maintenance expenses include yard care, gutter cleaning, snow removal (if applicable), air conditioning, washers and dryers, hot water heaters, and carpet cleaning. Additionally, it’s a good idea to shop around for internet and cable services if you’re moving to a new area. Depending on where you live, you may be able to get different services.
Homebuyers typically encounter these hidden costs, but each experience is unique! It will greatly help you in your planning if you know what expenses you will need to include in your budget. Keep a little wiggle room in mind, and you will be fine!