While your home will be one of the most expensive purchases you make and need to constantly pay off it is important to consider other expenses that come along with it. It is important that these expenses do not catch you off guard, especially if you are a first-time home buyer. You should know what you are getting into before you purchase a home.
On average, depending on where you live and how you buy, you could be paying around $9,000 a year in additional home ownership costs. Some of these costs are not necessarily hidden as much as they are overlooked. If you are interested in learning about which hidden costs to pay attention to and how much you should budget for ongoing taxes and insurance, refer to the sections below.
After you have put in an offer on a home, it will be accepted or declined. If your offer is accepted, the home inspection will be your first major expense. There is a possibility that more than one home inspection will need to take place.
You will want to schedule a thorough home inspection before closing on your home. Most times your lender will require one. It is preferred that you order a general inspection and a termite inspection.
Sometimes both inspections are included in one package, but you can also pay for them separately. If you have to purchase them separately, prepare to spend a few hundred dollars for the general inspection. The termite inspection will probably be around a hundred dollars, as well. If you are looking at an older house, depending on the age and condition it is in, you should also look into scheduling a sewer inspection. Sewer inspections can cost around $200.
Depending on the conditions of the home and who conducts the inspection, the services can add up to $1,000. If the house requires a lot of work and maintenance, it is in your best interest to renegotiate with the seller, pull out of the deal early or budget for the added-on maintenance work and expenses.
Depending on which state you live in, the seller is required to disclose if a previous buyer has backed out of the sale after the inspection. If you have a mortgage lender that does not require you to get inspections, it is up to you to decide if you want to have any inspections. However, it is a good idea to have an inspection so that you know what you are getting into.
A house is a huge purchase, so you want to make sure it is in the best condition possible. In the case that you do have the inspection, stick around while it is happening, so you know what is going on and see things for yourself.
You can also expect lenders to charge survey costs in some cases. This can cost a few hundred dollars, but you will get a professional survey that will show you where your boundaries are.
Once your offer is accepted, your lender will run the paperwork and crunch the numbers.
You should receive a detailed list of what your closing costs consist of. Expect your closing costs to be around 2% to 5% extra on top of the home asking price. This means if you are buying a $200,000 home, you can expect to spend around $4,000 to $10,000 on closing costs. The cost usually includes the following:
- Lender fees: This is everything from administrative costs to wire transfer fees to fees for pulling your credit report.
- Appraisal: Your home appraisal can be a large expense. You will pay several hundred dollars for these fees, at least. This is because the lender wants to make sure the home appraises for the sale price.
- Title or attorney fees: These are your government filing fees, escrow fees, notary fees and any other expenses associated with transferring the deed over to you.
- Escrow fees: You may have to pay some of your property taxes and insurance fees upfront into an escrow account.
- Interest: You will have to pay interest that’s prorated from the date of your closing to the first of the following month.
You can always use a closing cost calculator to determine exactly what you will need to pay, but it is best that you prepare to spend several thousands of dollars on top of your down payment when you are closing on your home.
Budget for Ongoing Taxes and Insurance
There is no doubt that your taxes will vary depending on how much your home is valued at and where you live, but it has been reported that the average homeowner will pay around $2,000 a year in taxes. For homeowner’s insurance, the average cost is $1,000. However, these costs can differ depending on where you life. Taxes, in particular, can vary depending on whether your state or municipality charges property taxes.
This all depends on the terms of your loans. You may pay this into an escrow account monthly. In the event that you do use an escrow account, you would make these payments to your lender, and they would pay your taxes and insurance for you. Not having an escrow account only means that you will have to pay these costs directly when they are due. You want to make sure that you are budgeting for these ongoing costs.
Saving for Maintenance and Repairs
Once you are a homeowner, it is important that you save for maintenance and repair expenses. If you previously lived in an apartment, then you know that if something breaks down at an apartment, it is the landlord’s responsibility. Once you own a home, all of these expenses fall on you.
It is important that you do not underestimate how much these projects can cost. A few projects that usually catch new homeowners off guard typically include leaky faucets, cracked exterior paint and jammed garbage disposals.
Because every home is different, you never know what will need fixing, so there is no specified amount that you should save for repairs every year. However, you should still set a budget for repairs so that you can still be comfortable when the time comes.