Are you getting ready to buy a home? Do you know all the expenses associated with buying a home? If not, this is a story you need to read. Learn from my mistakes as a first-time homebuyer. I had no idea there were so many hidden costs attached to buying a home. Read my story and avoid falling into the same financial pit I fell into.
The story starts like any good first-time home buying journey. I decided that 2020 was my year for homeownership. Little did I know it was going to quite a road to get there. Low inventory and lots of buyers meant I was going to use up every dollar I saved.
I finally found the home of my dreams. An even bigger accomplishment was when my offer got accepted. It’s about time. Over the last two years, I’ve put in over ten offers. None of them even came close to acceptance. Now it’s my turn. It’s been a long time coming but I finally got the news from my agent I’ve been waiting-the sellers accepted my offer.
For the past few years, I’ve been strict with my budget. I’ve watched where every penny went. I know a down payment is necessary. And that’s why I was so proud to save enough for a 20% down payment.
After I learned my offer got accepted, my agent scheduled a meeting. She wanted to go over the paperwork and discuss all the costs associated with this new purchase. As she runs through the contract, she lets me know all the costs that I’m responsible for.
I knew that I would need to put a down payment on the house. And I knew there would be the monthly mortgage payments that I would make. I had no idea all the other costs that somehow got lost when I started this process.
The longer the itemized list of expenses got, the more stressed out I felt. That 20% down payment was all the extra money I had to my name. Now she’s telling me that I need to cover closing costs and private mortgage insurance. As well as property tax, homeowner’s dues, and homeowner’s insurance. These are only a few of the expenses.
My mind starts to spin. I didn’t take into account all these hidden costs that would come with homeownership. My loan approval was for a certain amount, and wouldn’t cover all these extra expenses.
I had rented for the last 10 years and my expenses were basic. My rent, I paid a flat fee for my utilities (which included garbage), and internet.
When it came time to buy a home, I figured a home would be a little more in each of these categories. Boy, was I mistaken. It was at this moment I wished I had a better idea of all the unknown fees associated with owning a home.
Once I learned about this, I realized that I would be home poor. I had heard this term before but never understood it until now. While I have the money to cover these expenses as well as my mortgage, that’s where my entire paycheck would go.
I knew this would mean updating the flooring was out of the question. And it also means I will be the one doing all the interior painting since I can’t afford to pay someone. Exterior painting will have to wait.
The longer I sat with these numbers, the tenser I got. Yes, I love this house and I was so relieved my offer got accepted. Yet, all these hidden costs are making me rethink my decision.
After talking it over with my agent, I came to the conclusion this is not the right home for me. I wish I knew about all these costs before I started this process.
While I’m back at square one looking for a home that fits my new budget, you still have time to learn from my mistakes.
Learn from my mistakes and do yourself a favor if you’re looking for a new home. Make note of these 9 hidden costs that come with homeownership.
Cost #1. Closing Costs
I’ve watched all the HGTV shows about buying a home. Buyers always negotiate to have sellers pay the closing costs. With the current market, that’s not happening. Closing costs fall on the buyer and it’s money that’s in addition to the down payment.
In case you don’t know, closing costs are the sum of all the fees and payments associated with buying a home. These costs can vary by location and situation, but most include the following:
- Government recording costs
- Credit report fees
- Lender origination fees
- Title services
- Tax service fees
- Survey fees
- Underwriting Fees
That’s a lot of money when you add it up. In fact, closing costs are between 2-5% of the sale price of a home. This is money you need to have available. It isn’t the same as your down payment or earnest money deposit.
Cost #2. Appraisal and home inspection fees
Getting your home appraised is wise if this is your first, second, or tenth home. If your taking out a loan, an appraisal is a must. An appraiser makes sure that the value of your home aligns with what you’ll be purchasing it for. An appraisal can cost as much as $1000. This is money that’s non-refundable if you decide not to buy the home.
A home inspection makes sure that the house is in decent shape. The inspector lets you know all the behind-the-scenes issues that can arise with the home. This is money you want to set aside for repairs on the home. While you might be able to ask the sellers to lower the asking price, it’s not always a guarantee.
Home inspections can run between $400-$800. Your home inspection should happen before you buy the home. It is non-refundable if you decide not to go through with the sale.
Cost #3. Utilities
Unless you’ve owned a home before, you might not be aware of how expensive utilities are. Most apartments or rentals group utilities together and you pay a flat fee. Utilities can be upwards of $3000 a month depending on the size of the family. Fees such as watering for the lawn, garbage, and sewage aren’t paid when you rent.
Sometimes apartments have free wifi included when you sign a lease. When you own a home, this is an expense that’s on you. You might have even had a free gym with your apartment rental. If you want to continue with a gym, this is a new expense to your budget.
Cost #4. Moving Expenses
Hiring a moving company is an expense that is necessary. Unless you’ve got an amazing group of friends and family doing it for you. If you’re moving a lengthy distance, moving trucks can cost a few thousand dollars. That’s depending on how much stuff you’ve got and where you’re headed.
Besides the actual cost of moving trucks, you need to calculate gas and a hotel stay if necessary. Unexpected expenses always arise on a road trip. You should account for these when budgeting for a move.
Cost #5. Homeowner’s Insurance
Out of all the places to save a few bucks, homeowner’s insurance shouldn’t be one of them. Homeowner insurance coverage protects your home if a tornado were to rip off your roof. Or if your pipes fail and water fills your entire basement. It even protects your home if your new flat screen tv gets robbed while you’re out of town.
Depending on a few factors, including the value of your home, insurance quotes will vary. Location is another huge factor. If you live near an earthquake fault line or a hurricane-prone area, rates will be higher.
Cost #6. Private Mortgage Insurance
If you’re needing to take out a conventional loan when you buy your own, the lender requires you have private mortgage insurance (PMI). This kind of mortgage insurance protects the lender in case you default on the loan.
If your downpayment is less than 20%, it’s required to have PMI. The lender will work out the PMI with a private insurance company.
Cost #7. Attorney Fees
You need an attorney when it comes time to close your mortgage. Like any other service, there is a fee you’ll need to pay upfront. These services include filing fees, notary fees, and escrow fees.
The fees for each of these can vary. The filing fee depends on the number of pages in the document. It starts at $2 for the first page, and the goes down with each extra page. The notary fee can be anywhere from $10-$20. This fee pays the lawyer for notarizing the deed of trust with your mortgage.
The escrow fee, or closing fee, is the payment for closing the mortgage. This goes to your escrow agent and is at least $150. It’s important to note that attorneys charge different prices. These prices can change depending on your situation.
Cost #8. Homeowner’s Association Fee (HOA’s)
This fee only applies if the home you’ve purchased has HOA’s. Each homeowner’s association has a different fee. You pay this fee monthly, quarterly, or yearly. Before putting an offer of your home, you should know this amount so you can budget into your expenses. The money goes towards the cost of community upkeep and neighborhood maintenance.
Cost #9. Home maintenance, upkeep, and repair
If you’re used to renting and not worrying about the upkeep of your home, things are about to change with homeownership. As the owner, not only are you responsible for the repair, you also have to pay for the parts and labor. A lot of time these costs are out of pocket and not covered by your insurance.
Unexpected expenses will happen when you own a home. Clogged toilets, faucets that leak, water tanks that go out, or air conditioning that fails will happen. It’s a matter of when not if.
Every home is different and made of unique materials. There’s not a perfect formula to calculate how much you should budget for. A good rule of thumb is to budget 3% to 4% for newer homes. For older homes, budget 4%-5% every year.
If for any reason you have a year with little maintenance expenses, continue to put money aside. Create an emergency fund for your home. You never know when the plumbing needs replacing or the fridge goes out.
I hope this list can help you if you’re looking into buying a home. Don’t let your story be the same as mine. Not knowing all the hidden costs that come when buying a home set me back and ended up costing me the home of my dreams.
If you’re starting the home buying process, contact my new agent, Wendy Bathgate. She has helped me plan accordingly and talked through all these hidden expenses with me. I wish I would’ve used her in the first place.
Get in touch with Wendy today. She will make sure you are aware of every expense attached to buying a home.