If you are planning to buy your first home, chances are you’ve thought about a down payment and the cost of your mortgage. However, some first time home buyers make the mistake of thinking that those are the only costs associated with buying a home. The reality is that the costs of buying and owning a home extend far beyond a monthly mortgage payment, and should be budgeted for accordingly. Zillow estimates that the average costs of home ownership across the country, not including your mortgage, are around $9,000 a year! Prepare yourself (and your wallet) by learning what unexpected costs may arise as a first time home buyer.
Once your offer on a house is accepted, you’re expected to put up a large chunk of money up-front before you’re handed the keys. Make sure you’re saving for these expenses, and not just a down payment.
While technically not mandatory, home inspections are highly recommended by all real estate professionals. This is because they will reveal any hidden issues that may affect the purchase price or livability of the home. The buyer is responsible for hiring and paying a qualified home inspector. The average national cost for a home inspection is $300.
Most lenders will charge you the cost of a home appraisal. The appraisal will calculate the true value of the home, so the lender can rest assured that it is worth the money they are lending to you. The appraisal fee will depend on the size and complexity of the property, but the average price range is between $200 to $600.
An escrow account is a separate account set up with your lender in addition to the mortgage. You put money into the escrow account, and the lender uses that money to pay for necessary property expenses like insurance and taxes. These accounts are generally required with low down payments or specialty loans like an FHA loan, so the lender has a guarantee that the mandatory property costs will be paid. You can expect to put a larger amount of money into an escrow upon closing to cover the costs for the year, and then smaller amounts on a monthly basis along with your mortgage payment.
The cost of an escrow account depends on the costs of the property taxes and insurance premiums in your area. The average property tax in Pennsylvania amounts to 1.35% of the home’s value and the average homeowner’s insurance equals $967 annually. Those costs will vary even further depending on the county you reside in and your property’s specific attributes. For example, if you live close to the Susquehanna River and your land is in a designated flood zone, you’d be required to carry additional flood insurance.
When you close on a home, expect to pay around 3-5% of the purchase price to cover the closing costs. These costs could include:
2010 reforms require lenders to provide you with a good faith estimate of the total closing costs of your home. The final costs are not allowed to exceed over 10% of the original estimate, so you can use the estimate to reliably budget for your specific costs.
Once you’re handed the keys and all the paperwork is signed, prepare for even more immediate expenses to move in and get settled into your home.
Unless you own a truck, and all of your friends and family are available and willing to help, you will have to pay to rent a moving vehicle or professional movers to help you transport all of your belongings to your new home. Costs vary widely depending on the distance you’re moving, the amount of belongings you own, and the extent of the assistance you receive.
If your home isn’t move-in ready, what projects do you still have to accomplish? Whether it’s as simple as painting, or a more involved renovation project, prepare for those expenses before closing on a home.
If you’re moving from a small apartment, chances are you’ll have a much larger living space in your new home, but not enough furnishings to fill it. What furniture and decor will you need to finish decorating your space? Quality furniture can add up quickly and cost thousands of dollars.
While renting, you were probably only responsible for a small amount of recurring fees beyond your rent, but as a homeowner the list will grow exponentially. Make sure to budget for these continuing expenses in addition to your base mortgage payment and you’ll be able to tackle any unexpected repairs or maintenance with ease.
Is your home part of a homeowner’s association? If so, make sure you know what the annual fees are and what they cover. Many associations take care of exterior maintenance, landscaping, and community facilities.
While you probably paid a year’s worth of insurance up front in an escrow account, you will still need to budget for this recurring expense in the future.
Same as insurance, while you likely paid for your first year of property taxes up front, you’ll still be responsible for this fee over time. If you didn’t set up an escrow account, you’ll receive a bill for property taxes twice a year.
Your apartment’s rent likely covered some of your monthly utility bills, like sewer or trash. When you own your own home, you’re responsible for all utilities, and expect to shell out more money with more square footage. Types of utility bills include:
Last, but not least, you have to budget for the continued upkeep and maintenance on your home’s many functioning systems. The average U.S. household paid almost $3,500 annually to outsource required maintenance on their home. These maintenance costs covered everything from HVAC system inspections to fixing a leaky roof. While that amount of money may seem like a lot, it’s better to keep up with regular maintenance rather than having to do a total repair or replacement on a system you neglected.
While the costs associated with buying and owning a home can seem overwhelming, as long as you budget appropriately, home ownership will be manageable and enjoyable. The fact that you’re researching and educating yourself about home buying is a great first step to being ready.
Continue your research with our First Time Home Buyer’s Guide. Download the guide for free and take the next step towards buying your first home!