Money and Mortgage, Homeowner Tips Hidden Costs of Buying Your First Home
When it comes time to buy your first home, the down payment and mortgage payments may be your main focus for budgeting. However, there are other hidden costs you might not be aware of that are essential to budget for as well. Keep reading to learn about various fees to prepare for before buying a home.
A home appraisal is an unbiased professional opinion of a home’s value based on its condition, features, and location. An appraisal is not always required, but many lenders require it to ensure that they are not lending more money than the home’s actual worth. Appraisals can be beneficial or disadvantageous for the buyer, depending on the appraised value. If the value comes back lower than the asking price, the buyer has a chance to renegotiate. On the flip side, the buyer will need to pay more or continue home hunting elsewhere if the home is appraised for more.
A home inspection, though not required, is an essential step in the buying process as it determines any current or potential issues, damage, and safety concerns of a property. In addition, an inspection will give you a good idea of repairs you may need to do down the line. Also, if the home has a lot of issues, you can request that the seller make necessary repairs before closing the deal.
3%-6% of the home price
Your closing costs will not include the down payment but will consist of the following fees:
- Escrow fee (1%-2% of home purchase price)
- Homeowners insurance
- Private mortgage insurance (PMI) if you put down less than 20% of the purchase price
- Property taxes for the first six months
- Attorney review depending on the state you live in
- Title insurance (0.5%-1.0% of the sale price)
On average $1,200/yr
Though there’s no law requiring homeowners insurance, most lenders and mortgage companies won’t finance your home until you obtain coverage. In addition, homeowners insurance ensures that your home is covered if damaged by vandalism and certain natural disasters, such as in a fire, storm, tornado, and more. Homeowners insurance is highly customizable, but most policies offer standard coverage, including damage to the exterior and interior due to:
Homeowner Association Fees
You will need to pay a monthly or annual fee if you move into a community with a homeowners association (HOA). These fees will cover the maintenance of your neighborhood, shared amenities, and common areas. The amount you pay may change depending on the size of the property you purchase. A bigger unit will require larger monthly payments.
Repairs and Maintenance
Cost varies by property
Depending on the age and condition of the home you purchase, you may need to make some repairs or cosmetic updates. According to a survey from Thumbtack, Millennials can expect to pay $10,000-$15,000 on average for repairs and upgrades. More extensive upgrades, such as replacing heating or AC units, can be as much as $3,500. So be sure to consider the cosmetic and functional repairs a home may need before closing the deal.
If you are a first-time home buyer, the price of utilities may come as a surprise. The larger the home, the more expensive your monthly utilities will be. According to EnergyStar.gov, the average family pays $2,060 per year on utility bills in the U.S.
If you live in an urban area, utilities may include:
- Garbage pickup
- Water and Sewer
- Natural gas
In a rural area, utilities may include:
- Septic repair and maintenance
- Garbage pickup
- Wood for heat
Buying a home will likely be the most significant financial stress of your life, but remember that the home you buy will become an asset. So, the amount of time and work you put into your home to keep it in good condition and up-to-date will help it sell for more money down the road. Need help preparing for homeownership? HomeHunt’s got you covered! Download our free eBook, “Stop! Don’t Be House Poor,” to learn how to budget for your first home.