You’ve been living lean and saving smart for the past few years in order to scrape together the money for a down payment on a home. Good for you! It’s not easy setting aside 5 to 20 percent of the purchase price in order to qualify for a conventional mortgage, so you deserve to feel proud and excited to be buying your first home.
But before you call a realtor and start looking at houses, you should learn about the hidden costs of buying a home and other expenses you may not expect. These home buying costs could mean you need to save a little bit more money (above the budgeted down payment) or adjust your price range completely. Here are some typical expenses that often surprise first-time buyers.
You know you’ll have to pay them, but what exactly do closing costs include? In a nutshell, they’re fees lenders and third parties charge when you buy a home, and they can include:
- Inspections and appraisals,
- Surveys to verify property lines,
- Title insurance and title searches,
- Discount points (which you pay to get a lower mortgage interest rate),
- Recording fee (to record the purchase in local government records),
- and mortgage evaluation.
Typically, the buyer pays these fees, but it’s not uncommon for buyers and sellers to negotiate for the seller to pay a portion, or even all, of closing costs.
In the excitement of buying your first home, it’s easy to forget that moving out of your old home and into your new one is an unavoidable home buying cost. If you live in an apartment and are leaving before your lease is up, you’ll likely have to pay a penalty for breaking the rental agreement. Professional movers will charge you a fee, often by the hour. If you choose to do your own move, you still need to consider the costs of packing materials, and rental trucks. Depending on how far you’re moving, you may also need to pay for a night or two in a hotel.
If you’re moving into a community with a homeowners’ association, it will be the seller’s responsibility to make sure the dues are paid up until the closing date. Dues after that are your responsibility. Many HOAs collect their dues monthly or quarterly, so it’s likely you’ll need to pay some dues shortly after moving in. It’s important that you factor that amount into your budget when assessing if a home is affordable or not.
Decorating or Renovations
Rare indeed is the resale home that’s decorated exactly the way the buyers want it. Chances are good you’ll find something cosmetic you want to change right away, whether it’s changing wall colors, replacing window treatments, or ripping out old carpet. Even if you’re buying a brand new home, you’ll still have decorating work to do. Starting with a blank decorating slate is exciting, but it can also be costly. New home builders usually don’t include blinds or window treatments of any kind, and choose very bland colors for walls.
In addition to the money you’ve set aside for a down payment and closing costs, it’s smart to have a few thousand more stashed away to handle the hidden costs of buying a home. With that extra savings, you’ll be able to fully enjoy your new home without having to worry how you’ll pay for it when something unexpected comes up.