Are you preparing to purchase a house for the first time? It’s important to understand the additional costs beyond the down payment and monthly mortgage payments. Incorporating and preparing for the costs below will help guide you to becoming a responsible homeowner.
Inspection and appraisal
Understanding the bones and health of your home are just as important as understanding your physical health. Just as visiting a doctor will help uncover any hidden issues, a home inspection will do the same. This gives you a basis for negotiating repairs or a lower purchase price with the current owners. Although the inspection may end up saving you money in the long run, Andrea Kiplinger’s Browne Taylor writes you’ll likely need to pay between $200 and $600 for a home inspection. You should also keep in mind your mortgage lender will need to appraise the home to confirm it’s worth what you’re paying. According to Taylor, you’ll probably end up paying a fee of several hundred dollars to cover this service.
The difference between a home inspection and an appraisal can be confusing for first-time home buyers. Many think they are one in the same. But a home inspection examines the homes structure and health, while an appraisal reviews its value in the area it resides against homes similar in size and likeness.
Closing costs
“Closing costs” are a large grab bag of expenses you’ll have to pay as you wrap up your home purchase. Jean Chatzky of The Balance notes these frequently include title insurance and all sorts of fees — for legal costs, originating the loan, recording the deed, and more. Taylor adds you may also be required to make an initial deposit into an escrow account, which many lenders use to cover your mortgage payments, property taxes, homeowners insurance premiums, and other costs. Altogether, closing costs could equal up to 5 percent of your home’s purchase price. In some cases, sellers pay a portion of the buyers closing costs if negotiated, but it is best to be prepared to pay all on your own.
Taxes and insurance
Property taxes, homeowners insurance premiums and private mortgage insurance (PMI) may be part of your closing costs. Your mortgage lender will almost certainly require you to carry insurance on your home so it will be covered in the event of a fire or a natural disaster — and it’s a good idea to keep this policy even after you’ve paid off the house. Meanwhile, property taxes will be a fact of life almost anywhere you live, whether they’re assessed at the state, county, or city level. Rates can vary quite a bit from place to place, so be sure to research these as part of your house-hunting and budgeting process. PMI is a policy that protects the lender or investor should you stop making payments on a conventional loan. This is typically required if you put less than 20 percent of the home’s purchase price down. For questions about taxes and insurance, please contact your favorite First Federal Bank Loan Officer to discuss your options.
Utilities, maintenance, and repairs
As a first-time homebuyer, this may be your first time paying for your own utilities — electricity, gas, water, sewer, internet, trash collection, and others. You’ll also be responsible for covering all your maintenance costs, including everything from lawn care to appliance upkeep. Repair and remodeling costs will come out of your pocket as well—so before you buy, consider what you might need to spend in the future to replace the roof, buy new appliances, apply new paint, or service the HVAC system. There are many home warranty options that can assist with appliance repairs, HVAC units, and more. These can be discussed with a Realtor at the time of purchasing your home, and negotiated with as part of your contract.
Buying your first home is a huge step, and you can make the experience much less stressful by planning ahead and budgeting for the major costs you’re sure to encounter along the way. Keeping in touch with your Realtor and Lender are vital to the home buying process. If you have any questions or concerns, simply reach out.