Buying a home for the first time? You may be in for a surprise as you start getting deeper into the process. Buying a home involves working with many different institutions and specialists for the first time, and by the end of it all, you may even end up paying slightly more than the home value. What’s the best way to stay ahead of these expenses?
Here are some of the most common expenses first-time home buyers should be aware of.
Closing costs can catch many first-time homebuyers off guard. Outside of your mortgage loan, closing costs include all of the upfront costs for home purchase including inspection fees, HOA dues, home insurance, warranties, and recording fees. Often times, you may pay some percentage of your closing costs at the beginning of the process with “earnest money” to confirm your commitment to starting the homebuying process.
These costs are generally around 2% to 5% of the home’s value. Consider negotiating with the seller to pay part of it.
Ongoing home maintenance costs are another expense many first-time homebuyers may find surprising. Unlike in rented spaces where the landlord takes care of repairs and renovations, when building your own home, you are the one responsible for all maintenance.
The average yearly cost of home maintenance is around 1% to 2% of the home’s purchase price. The first year tends to be more costly than the preceding years.
Some of the most common home maintenance costs include gutter cleaning, pressure washing, carpet cleaning, and lawn services. The total costs of these services vary location by location and with the age of the home.
Proof of homeowner’s insurance is often required when purchasing a home. Even though the plan premiums can be quite costly, it’s a critical part of protecting your investment.
There are several ways to save money on homeowner’s insurance. For example, you can try to bundle your new home insurance policy with your auto insurance carrier to reduce your monthly premiums. Get competitive quotes from multiple insurance companies. You can also seek out discounts as a result of your lifestyle or home upgrades: working from home, adding a security system, etc.
If you’re buying a home in a place prone to earthquakes, hurricanes, or other natural disasters, you might want to purchase additional coverage that may cost a little more at first, but will save you thousands of dollars in the event of a disaster.
Even first-time homeowners aren’t strangers to utility costs, as even renters pay utilities. The big difference is that the landlord might cover some expenses for the rental as it remains their property. With a home, you are responsible for covering all utilities, including water, gas, internet, phone, and electricity.
Utility costs vary by location and municipal laws. Research the neighborhood you’d like to move to so you can generate estimates for the water bill, garbage, etc. You can even reach out to residents around the area to estimate how much your monthly utilities might cost.
Every state charges property tax to homeowners, and the value of the property tax varies per state. It will also depend on the type of house and municipality. Talk to your agent when assessing the home before the purchase to ensure that you are comfortable with the rates. If you feel like your property taxes are too high for the value of the home, you can appeal your property tax bill at your local tax office.
The Bottom Line on Homeowner’s Expenses
Even though first-time homeowner expenses can pile up quickly, staying informed and ready helps manage them. Calculate all the possible costs, and then find the ideal financing to achieve your dream of homeownership.