Buying a home requires a lot of money – in fact, a home might just be the most expensive possession a person will ever own. There are some obvious costs associated with buying a home, such as a down payment or mortgage, but others less-familiar costs can also catch people, especially first time buyers, off guard.
Inspections are usually the first expenses in the buying process. Homebuyers should conduct a general inspection of the house to check for significant problems such as: structural damage, pest infestation, and electrical issues. Depending on the condition and age of the house, buyers may also need more specialized inspections for the sewer or water systems. Whether or not the buyer ends up purchasing the property or not, they will still have to pay these inspection fee.
Once an offer on a home is accepted, lenders compile the closing costs, or additional fees that buyers will need to pay. These expenses typically include lender fees, home appraisal, title fees, escrow fees and interest. Typical closing costs usually run between 2% and 5% of the total purchase price of the home, but total cost does vary based on the individual situation.
Money for Ongoing Taxes and Insurance
A mortgage calculator can help homeowners estimate what the mortgage and interest will be each month, but the costs of taxes and insurance will need to be added as well. Taxes will vary depending on the location of the home and its value. Home insurance will also vary. There will need to be additional money set aside for mortgage insurance, if the down payment is less than 20%. Mortgage insurance rates fluctuate, but they are usually between .03% and 1.5% of the original loan amount.
Funds for Maintenance and Repair
Homebuyers know that they will be on the hook for any maintenance and repairs that the home needs, but many underestimate just how much these projects will cost. Anything from leaky faucets to new paint will be added expenses for which new homeowners will need to be prepared. There is no right number for how much to set aside for these costs, but estimates range from 1% to 4% of the purchase price to hold for maintenance.
Higher Utility Bills
Bills aren’t always higher in a home than in a rental, but many former tenants can be surprised at the higher gas, electric and water bills. Landlords sometimes pay for some of the expenses that homeowners are now responsible for.