Thinking that buying a home is only about down payment expense? Nuh-uh! Take a look at these surprise costs for first-time buyers like you (unless you are prepared for them!)
What a eutrophic feeling as soon as you finally found the type of house you’ve wanted for so long. But, wait! Unexpected hidden costs may start to come along, removing that initial happiness.
Preparation is key here. Make sure to have enough funds in your bank account so your excitement and bliss will continue to flourish.
What are these hidden costs we are talking anyway?
We have compiled ten of them.
- Earnest Money
Earnest money is the deposit made by you as a home buyer. It indicates how trustworthy and dedicated you are when making an offer on a home. If your offer is approved, the money will be used towards the closing costs or down payment. But if it is not approved, the money will be returned to you.
What if you are no longer interested in the house? It is always crucial and necessary to thoroughly review the contract before you put down earnest money. However, should a contingency not be met, and you are able to back out of the contracted offer, the earnest money is returned. Should you cancel the offer without justification, the earnest money many not be refundable.
- Escrow Fees and Accounts
You put money in the escrow account. Your lender will then use that money to pay for property costs such as taxes and insurance. Escrow accounts are typically required with specialty loans (e.g., FHA loan) and with low down payments.
There may be legal fees charge to set up these financial accounts as well as fees for an attorney or title company to transfer the title into your name.
Insurance can be divided into 3 categories:
- Homeowners insurance – helps you to pay for necessary repairs, cover personal belongings, rebuild the house, or protect you from liability claims.
- Mortgage insurance – is obtainable when you put down below 20 percent on the home purchase. The costs will be added to the closing expenses, monthly mortgage payments, or both.
- Supplemental insurance – ideal for those living in an area where chances of earthquake or flood are quite high.
Talk with a reliable insurance agent to know the best rates on your insurance needs.
- Inspections and Appraisals
Although not technically obligatory, home inspection serves numerous benefits to ensure your comfort and safety during a real estate transaction. A home inspector will reveal any hidden issues that can affect the home’s liability or acquisition price.
Appraisal fee, on the other hand, calculates the home’s real value to give lenders an assurance that it is worth the dollars they’re lending to you. The appraisal fee depends on the complexity and size of the property.
- Property Taxes
Another surprise cost for first time home buyers is the property tax. You may already have an idea about the amount you will need to put down since the fee is typically disclosed on the home listing. Property tax varies from state to state, and even then, county to county.
More urban areas and bigger cities commonly have higher property taxes compared to rural places. Taxes are evaluated based on the existing home value and can change over time to reflect the property’s decrease or increase in value.
Owning a home also means being accountable for all utilities including electric, water, trash, gas, and sewer. The utility company will check your credit record and may necessitate you to pay a deposit. Otherwise, the company will get a letter of guarantee from a person who settles to pay your bills. The larger your home, the more you can expect utilities to be.
- Appliances and Furnishings
A newly purchased home is not equipped with furniture and sometimes not even appliances. At a minimum, you will probably need to buy new appliances such as a washer, dryer, microwave, and other small appliances. If you are buying from a previous owner, you can typically ask that the large appliances stay behind during the negotiation phase – and most agree. Most new construction can include the cost of large appliances like stoves, dishwashers, and refrigerators – but you may save if you purchase these items yourself.
- Maintenance, Improvements, and Repair
You need to budget for the continual maintenance and upkeep of the many functioning systems in your home. For instance, maintaining your pool, HVAC system, or large backyard.
If you want to add a personal touch to your home, start a savings fund. The costs of adding a new door, new paint coat, etc., add up quickly.
Repairs can also sink your house budget, no matter how small or big they are. Expenses for repairing things such as leaky faucets are a normal part of maintaining a home.
- Pest Control
When ignored, annoying pests will can infect your property (inside and out) and eventually cause it to lose its value. Even if your home is already screened, pests may be still likely to occur especially if there’s a change in season. Surely, you don’t want to have mice as your co-occupant. Pest control expenses are a basic cost if you want to maintain a safe, comfortable, and clean home.
- Homeowners Association Fees
This only applies to those who bought a home in a suburb, subdivision, or planned development. You will be charged a Homeowners Association (HOA) fee. The payment you will give covers things such as landscaping expenses or public area maintenance.
The HOA fee can be paid monthly or annually. In addition, most associations implement rules that every homeowner must adhere to. For instance, some enforce that all mailboxes should be painted in the same color, such as white or blue.
Seek Professional Advice
With all these surprise costs, knowing where or how to get started may seem confusing. While the home acquisition is a costly undertaking, don’t allow it to put you off. Instead, team up with a reliable mortgage company! American Dream Home Mortgage will help you anticipate expenses and minimize your costs wherever possible and get you started on the path to pre-approval for a home loan.