Buying your first home? It helps to know some of the expenses you’ll have during this process. New homebuyers may only consider the selling price and down payment for the home when in actuality, many more fees occur with such a big purchase. A lot of these are one-time only, but they add up. Luckily, you can often negotiate with the seller to bring down the cost. Avoid coming up short with your funds by checking out this housing expenses list for first-time buyers.
- Down Payment
- Property Taxes
- Private Mortgage Insurance
- Homeowners Insurance
- Maintenance Costs
- Closing Costs
- Home Inspection
- Real Estate Agent Fees
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1. Down Payment
The down payment is one of the first items to put on your housing expenses list. It’s usually 15% to 20% of the home’s selling price. You owe this money upfront to secure the house — the lender must know you’re capable of paying off the mortgage before you buy. You’ll eventually earn this money back because it goes to your home equity. If you can’t pay the entire cost, you do have options available for lowering it, but consider going with a cheaper home before making this decision.
A reduced down payment means the lender requires you to buy private mortgage insurance — plus you’ll have a higher interest rate on your home loan. Paying this expense in full decreases the amount of money the lender must pay if you lose the house.
2. Property Taxes
The amount of property taxes you pay depends on your state’s guidelines and the value of your home. Once a tax expert figures your home value, they’ll multiply the number by the local property tax rate, which is usually one dollar for every $1,000. These taxes fund your local fire departments, schools and libraries. Sewer maintenance and water will likely take up a portion too. Keep in mind you’ll have to pay part of these taxes to the previous homeowner if they’ve already paid for the year.
3. Private Mortage Insurance
A low down payment calls for private mortgage insurance or PMI. Lenders require this because they consider you a high-risk buyer — they need to know they’ll get their money back in case of foreclosure or loan default. PMI often combines with the up-front down payment, but sometimes it’s rolled into your monthly mortgage payments. You can expect to pay up to 2% of the mortgage toward your PMI every year.
4. Homeowners Insurance
Homeowners insurance covers four types of home incidents, and its cost depends on the area you live in. If your location is susceptible to natural disasters, you’ll need better coverage and will need to pay more. You can lower the cost, however, if you include your home insurance with your automobile or life insurance. Purchasing a house requires you to buy homeowner’s insurance ahead of time and make a few payments before you close on the sale. This ensures you have a policy covering your home that you’re able to pay on.
5. Maintenance Costs
Maintenance comes after you’ve already closed on the house, but they’re still important costs to jot down on your housing expenses list. Upkeeping a home is a multi-part process, and it requires the necessary tools. You’ll need to buy home tools and equipment for lawn maintenance, such as a lawnmower, hedge cutter, and more. You should also set aside some funds for potential repairs or renovation projects. Though this may not sound like much, these expenses will add up and can cost you up to 3% of your home’s selling price each year.
6. Closing Costs
This is money you don’t earn back in your equity. Many of these costs are one-time fees that occur throughout the buying process. Sellers often roll them up into one big expense for you to pay at the closing, and from there you can negotiate. Some typical closing costs include survey fees, credit report fees, document preparation fees and title insurance.
The survey fee covers a map delineating the legal boundaries of your property. This information comes in handy if the property doesn’t have a fence. If you put one up, you’ll know where your yard ends and where your neighbor’s land begins. Though not always necessary, this document aids in preventing property disputes.
The credit report fee is the cost of running your credit report, as sellers usually require a verified document. This amount can be up to $50. Document preparation fees involve the costs of preparing and processing loan documents and other closing paperwork. Title insurance protects the lender in case they don’t have full ownership of the property or if issues with the title arise. You can also invest in title insurance for yourself, which can tack on another $800.
7. Inspection Fees
Inspections aren’t always necessary, but sometimes your purchase requires them. Regardless, most experts would recommend getting an inspection no matter what. Inspectors will come out and check your house for potential safety issues such as pests, mold and unstable structure. If they find problems, you can pay to fix these or back out of the purchase if they’re too significant.
While home inspections can cost a few hundred dollars, the risk of paying thousands for an unforeseen home repair — or being stuck with an uninhabitable house — is far too high for most homeowners. As they say, if you can’t afford an inspection, you can’t afford a house.
8. Real Estate Agent Fees
The real estate agent commission is one expense you won’t have to stress over because the seller usually pays this. Most agents don’t have hourly rates and only earn their money after the closing of a sale. Though the amount varies depending on the sale, it’s typically around 6% of the home’s purchase price. A house you buy for $200,000 will result in $12,000 for their commission.
Housing Expenses List for Buyers
Now that you have a general idea of what to expect with housing costs, you can begin the search for your perfect home. With this housing expenses list in your arsenal, you’ll stay ahead of the game and avoid being sideswiped by unexpected expenses.