7 unexpected costs for first-time homebuyers

7 unexpected costs for first-time homebuyers

First-time homebuyers know they’re preparing for a down payment, but that’s not the only cost to consider when buying your first home. Home buying costs can add up quickly – and often startlingly – so it’s important to know and prepare for them before you check in on the dotted line.

The following seven costs often surprise first-time homebuyers — but only if you’re not prepared for them.

1. Make money

Make money as a deposit in your home buying app. It tells the seller that you are a committed and trustworthy buyer. If the contract is completed, funds will be applied to the down payment and closing costs. And if the contract is not executed, there are many contingencies to guarantee a refund. Just deciding that you’re no longer interested in the home likely doesn’t constitute a legitimate reason to back out of your contract, so review any contracts carefully before putting in serious money.

Tip: You should keep one to two percent of the total purchase price on hand as serious money. This will help move your order faster, which is an important factor as the housing market becomes more competitive for buyers.

2. Evaluations and inspections

You can’t avoid ratings and inspections, and you shouldn’t want to. Assessments ensure an accurate asking price, providing some protection for you and your lending institution. Buyers are usually responsible for valuation—often several hundred dollars—although you may be able to negotiate these costs with the seller.

Home inspections are separate from the appraisal process and provide additional security for homebuyers. They can prevent unexpected surprises such as a termite infestation or leaking pipes. Since these issues can influence your buying decision, as well as give you bargaining power, you’ll want to know about them before closing. In some cases, you can ask the seller to address concerns before closing or negotiate a better asking price. The buyer generally pays for the home inspection as part of the closing costs.

Tip: If you can, attend a home inspection so that you understand any issues as fully as possible before trying to negotiate the terms of your contract.

3. Insurance

Insurance can be complex, but you can roughly break it down into three categories: homeowners insurance, mortgage insurance, and supplemental insurance. Every homeowner needs homeowners insurance. It helps pay for repairs or rebuild the home, covers personal belongings, and protects you from liability claims. Many lending institutions will require you to purchase homeowners insurance — and pay one year of coverage — before your loan is approved.

If you can put more than 20 percent on a home, your lending institution likely won’t require you to purchase mortgage insurance. If you are required to purchase mortgage insurance, the costs will be added to your monthly mortgage payments, closing costs, or both.

You don’t need to purchase supplemental insurance, but it may be a good idea if you live in an area prone to flooding or earthquakes, as these are not generally covered by standard homeowners insurance policies.

Tip: Work with an insurance agent to get the best rates for all your insurance needs. You may be able to cancel your mortgage insurance after paying off part of your loan.

4. Escrow fees and accounts

The escrow staff – often lawyers or company representatives – act as an independent third party to ensure that closing procedures go smoothly and that everyone gets paid. Unfortunately for home buyers, this means that the escrow officer also needs to get paid. Warranty fees are generally split between buyers and sellers.

Separately from the escrow fee, your lending institution may request an escrow account to pay your property taxes and insurance. This account ensures that these fees are paid on time, which is why many lenders require the account. The lending institution will estimate your annual costs for insurance and taxes, divide the estimated annual total into monthly payments, and include these costs in your monthly mortgage payments.

At the end of the year, the lender will adjust the amount based on actual taxes and insurance bills. If you pay too much, you will get your money back; If you don’t pay enough, the payments are generally spread out over the next year. If you decide to go without ESCROW, you will be responsible for the two payments by yourself.

Tip: Property taxes can be an unpleasant surprise, so research them before committing to a purchase. A licensed real estate agent can help with the business.

5. Facilities

If you have rented a house or apartment before, you may have to pay connection fees for electricity or gas. When you own your home, you’ll be responsible for paying monthly setup fees and bills for each facility – including electricity, gas, water, sewer, trash, recycling, television, and internet. Utility companies will check your credit history and may ask you to pay a deposit or obtain a letter of guarantee from someone who agrees to pay your bills if you are unable to do so.

Tip: Talk to your new neighbors about who they buy utilities from. Some locations only have one water and gas provider, but if you live in a location with multiple providers, you should compare prices to get the best one.

6. Home improvements, maintenance, and repairs

Even if home sellers cover major repairs, such as a basic problem, you may still find yourself with the costs of a new HVAC system, roof, or water heater after a shutdown. Other expenses will be subjective, of course, such as cosmetic upgrades to cabinets, floors, or walls. And if your new home has a yard, you’ll need to purchase a lawn mower and weeding machine or rent a lawn and landscaping service as well.

Tip: List the improvements and rank them as needed. A new HVAC system may be necessary, while cupboards and other cosmetic upgrades can wait until next year. If you prioritize repairs, you can keep costs low, not to mention recoup some investment if you sell the house later.

7. Furniture and appliances

Don’t expect your new home to be equipped with all the appliances you’ve seen inside. Every market is different, but you’ll want to discuss all hardware with the seller to make sure you’re aware of what comes with the house and what doesn’t. At a minimum, you’ll likely need to buy a new washer and dryer, if not a refrigerator and stove, too. Things like ceiling fans, lighting fixtures, and AC units — devices you might consider “fixed” — won’t necessarily be present when you move unless they’re an express part of the contract.

Tip: As with repairs, prioritize furniture and appliances as needed. If you purchase energy-efficient appliances, keep the receipts. You can often claim expenses on your tax return.

Now that you are ready for all the costs incurred in your first home, get ready to sign this contract and move into your own home!