Purchasing a Home? Make Sure You’re Prepared for These 7 Hidden Costs
As real estate markets re-open across the country, current low mortgage rates may make it seem like the perfect time to purchase a home. However, purchasing a home is a substantial responsibility and commitment—not to mention one of the largest!
One of the biggest mistakes a homeowner makes is spending more than they can afford by overlooking the “true” cost of homeownership.
To help with budgeting and understanding overlooked costs, we've partnered with non-profit GreenPath Financial Wellness. They offer access to tools you’ll need to make the best decisions and preparation for your purchase.
When budgeting for your home, here are seven often overlooked costs that can have a big impact on your bottom line:
1. Property Taxes
When shopping for a new home, pay attention to the property taxes! Property taxes not only vary wildly state-to-state, but also within the same city.
It’s also important to note that property taxes can go up substantially when a home gets re-appraised and it is found that the home’s value has gone up. So, if you’re buying a home that hasn’t been re-appraised in quite some time and the current owner made some substantial upgrades, it’s important to note that the historical numbers you are seeing will likely go up after you purchase the home.
2. Closing Costs
Buyers are often so focused on the purchase price of their home and the initial down-payment, it can be all too easy for closing costs to get overlooked. Due at the time the buyer closes on the home, these fees include things like mortgage taxes, lender application fees, attorney’s fees, title insurance, and appraisal fees that typically range from 2-5% of your home’s purchase price.
3. Private Mortgage Insurance (PMI)
If your down payment is less than 20% of the home’s price, you usually are required by the lender to take out a private mortgage insurance policy until you have accrued 20% equity in your home. This policy protects the lender in case you default on the loan.
PMI typically amounts to .5% - 1% of the entire loan amount on an annual basis—which could add up to several thousand extra dollars a year.
4. Homeowner’s Insurance
Many buyers often under-estimate the cost of homeowner’s insurance. According to insurance.com, the national average annual homeowner’s insurance payment is currently $2,305. However, if you live in a state where storms drive up premiums, you could pay far more for the same amount of coverage.
5. Utility Costs
If you’re used to apartment living, it’s important to note that the utility costs for a home with a single family footing the bill will be significantly higher. You’ll want to consider electric, gas, water, sewer, cable, telephone and internet.
When shopping for a new home, it can be a good idea to ask the current homeowner what their monthly utilities typically run so that you can get a realistic expectation of what you should expect to pay.
6. Moving Costs
Although it’s a one-time cost, a same city move averages $1,000, and can go up from there depending on the size of your house and distance, so make sure you factor it in.
7. Home Maintenance and Repairs
Even if you buy a home that’s move-in ready, it’s important to have a “rainy day” fund ready for when the AC goes bad or you finally need a new roof. Depending on your house’s age, homeowners should plan to save 1 to 4% of your home’s value each year to be able to cover repair and maintenance expenses that will come up.
Home buying might seem like a complicated process, but with the right planning, budgeting and preparation, it can be incredibly rewarding.
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First-time homebuyers receive all sorts of added benefits, like lower interest rates and a far lower down payment (5% down, anyone?) You're making the jump into homeownership to set yourself up to do more of what you love. That's a specialty of ours with an amazing deal specifically for first-time buyers. If you're not a first-time homebuyer, we offer other great programs that you can view here. Are you ready to get excited? Apply today!
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