Three years ago, my husband and I fulfilled our dream of buying a home together before we turned 30. Along the way, we made a few mistakes and learned important lessons about what it really costs to buy a home. If you’re thinking about house-hunting, read on to learn some potentially unexpected costs to factor into your budget.
1. Down Payment
When most people talk about saving up to buy a house, they’re thinking of the down payment. There’s a good chance this will be the biggest part of your home-purchase expense, but your goal down payment may be lower than you think. Although many articles still talk about a 20% down payment as the gold standard, many lenders will work with a much lower figure. A more typical down payment for 60% of first-time home-buyers is only 6%.
In some cases, even if you can pull together the cash for a 20% down payment, you may choose to provide a lower amount. Having money on hand for necessary repairs, closing costs, and an emergency fund may be more important for you than meeting a 20% down payment benchmark.
2. Insurance Increase
The average nationwide cost of renters insurance is about $187 per year. Individual state averages range from about $115-$242 per year. Compare that to the national average annual premium of $1,083 for homeowners insurance, and it’s easy to see why many new homeowners need to review and adjust their budget expectations.
Most lenders won’t work with you on a mortgage unless you insure your home. Compare estimates from a few companies before purchasing a policy so you can find the best price for the coverage you need.
3. HOA Fee
My neighborhood Homeowners Association (HOA) manages assigned parking spots and snow removal for residents, maintains a community pool, and even pays for a few neighborhood utilities like water. All of this is great, but it’s not free: homeowners chip in toward these community expenses through a monthly HOA fee.
The national average HOA fee climbed from $250 in 2005 to $331 in 2015. Your location and the services your HOA provides will affect your HOA dues, but don’t make an offer before checking how much you’ll pay. It’s also smart to read the fine print: HOA fees may be subject to change. Documentation from the HOA should tell you if there’s a rate increase coming soon.
4. Outdoor Equipment
If you were used to apartment living, this may be the first time you’re responsible for maintaining a yard. Your expenses will depend on how much time you plan to spend cultivating a green thumb, but most homeowners should plan to spend on the following outdoor items and services:
- Fences (replacements or repairs)
- Mowing equipment
- Yard tools
- Outdoor furniture
- Hose and sprinkler system
- Pest control services
- Window washing
- Gutter cleaning
5. Home Repairs
When the first big rainstorm hit after my husband and I bought our house, we encountered an unpleasant surprise. Water dripped through the upstairs bedroom window, staining the dining room ceiling and leaving a wet mess. Worse, we couldn’t solve the situation with a quick call to the maintenance office.
As a new homeowner, you’re the maintenance chief now! Leaky faucets, ripped screens, and broken dishwashers are your domain. Experts generally agree that calculating 1% of your home’s purchase price gives you a good sense of annual maintenance costs. Because home repairs are often unpredictable, plan to set money aside every month toward a “leaky ceiling fund.”
When you visit a prospective home, ask about the age of the appliances. Major appliances like refrigerators, dishwashers, stoves, and more have a lifespan. The laundry room in our new home was stripped bare, so we needed to add the cost of a washing machine and dryer to our moving budget.
Some major appliances, like the HVAC system, can cost over $10,000 to replace, factoring in ductwork and installation costs. Even a duct cleaning can run several hundred dollars. If you can see if the seller will take care of some of these costs before you move in.
Some items feel so ordinary and easy to take for granted that it’s almost like they’re invisible. That is, at least, until they’re no longer there. Most rental apartments come with some form of window treatment, but your new house may not. My husband and I had to tape a sheet over the bedroom window for our first week in our new home because we didn’t notice the lack of curtains until too late.
When you’re doing a walk-through, take note of the number of windows. Try to spot other “invisible” items, too. Are there towel bars and curtain rods in the bathrooms? Will you need to buy lamps for additional rooms? Make a list of incidental expenses so they don’t catch you by surprise.
8. Closing Costs
You’ll work with various professionals to close on a house, and everyone needs to make a living. “Closing costs” is a catch-all term to lump together the various fees and expenses that go into making your home purchase official, such as:
- Home appraisal fees
- Home inspection fees
- Attorney fees
- Origination fees (for the bank to create a loan)
- Recording fees and local government taxes to record a property sale
- Private mortgage insurance (generally required for buyers offering less than 20% down payment)
- Real estate title insurance
Depending on the housing market in your area, you may be able to negotiate for the seller to pay for some or all of the closing costs, but otherwise, be prepared for closing costs to add up to around 2% to 5% of the purchase price of the house.
Let credit.org help you move toward homeownership! Our personal home buying coaches can offer expert advice and answer your questions about the process.