- 17 Aug
Buying Your First Home? Budget for These Unexpected Costs
5 Tips for Buying Your First Home
You already know that buying your first home is likely to be expensive. With the average cost of a home hovering around $200,000, just saving up for the 20 percent down payment means squirreling away $40,000 or so. But the down payment is not the only thing you need to budget for.
Many first-time buyers are surprised at the hidden costs of buying a home. Whether you are already in the market or still saving up for that hefty down payment, here are a few extra costs you may not have thought about.
Save for a Home Inspection
Whether you are buying a home in a brand-new development or purchasing a 100-year-old property, a thorough home inspection is an absolute must. If you fail to have the property inspected, any problems that arise later will be your problem — and your expense.
Having the home inspected prior to closing can give you additional negotiating power if problems are uncovered, and peace of mind if they are not. Depending on where you live, you can expect to spend at least $200, and as much as $600, on a quality home inspection.
You may be vaguely familiar with closing costs, and you may have even budgeted for these nuisance expenses. What you may not realize, however, is just how costly average closing costs can be.
On average you can expect to pay between 2 percent and 5 percent of the purchase price at the closing. If you are buying a $200,000 home, that is an extra $4,000 to $10,000, on top of the down payment you have already negotiated with the lender. MyFico has a handy closing costs calculator for home buyers.
An Escrow Account
Depending on the terms of your mortgage loan, you may be required to set up an escrow account. This escrow account will be used by the lender to pay a number of home-related expenses, such as property taxes, private mortgage insurance and premiums for homeowners insurance.
The cost of the escrow account varies, but it is important to budget for this expense if your lender mentions escrow. You can estimate the cost by reviewing the annual cost of your property taxes, homeowners insurance and private mortgage insurance (if required), then dividing that figure by 12 for a monthly cost.
Having the Home Appraised
Lenders (and buyers) got into a lot of trouble when home values dropped and mortgages ended up underwater. Banks are not anxious to repeat those mistakes, and they are taking a harder line on home appraisals.
If you are taking out a mortgage, your lender will probably require a home appraisal before the deal goes forward. Depending on where you live, you can expect to spend at least $250 verifying the value of your home. In some parts of the country the cost could be as much as $600. Make sure you include those potential costs in your home buying budget.
Ongoing Maintenance and Repairs
When you own your own home, there is no landlord to call when the toilet stops up or the heating system fails at 2 a.m. The cost of ongoing maintenance and unexpected repairs takes many first-time home buyers by surprise.
It is hard to estimate the cost of repairs and maintenance, but it is a good idea to budget at least several thousand dollars a year. Setting up an emergency fund to pay for unexpected expenses will help you avoid sinking further into debt.
Preventive maintenance can help a lot too. Replacing a worn section of gutter could prevent costly damage to your roof. Installing a sump pump in the basement could stop water from damaging the foundation and supporting walls.
Buying your first home is exciting, but it is also an expensive proposition. If you are budgeting for that big purchase, be sure to take the hidden costs into account.
About the Author
My journey as a Cleveland home inspector began 15 years ago when I was buying real estate properties in Ohio. Because they were my investments, I wanted to make sure I was getting a great deal, so I decided to learn everything I could about general home inspections.
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