You’re excited because you just found the perfect home. The neighborhood is great, the house is charming, and the price is right.
But if you’re a first-time home buyer, you might find out that the price is pretty far from perfect.
If you’re shopping for your first home, additional – and often unexpected – home-buying costs should be top of mind. These costs catch many home buyers unaware, and can quickly leave you underwater on your new home.
The best way to deal with this is by preparing yourself and making sure you have enough cash tucked away for a rainy day.
Costs coming out of the woodwork
For almost every person who buys a home, the spending doesn’t stop with the down payment. Homeowners insurance and closing costs, like appraisal and lender fees, are typically easy to plan for because they are lumped into the home-buying process, but most costs beyond those vary.
The previous owners of your home are the biggest factor that goes into your move-in costs. If they take their refrigerator when they move out, you’ll have to buy one to replace it. The same goes for any large appliance.
And while these may seem like a small purchase compared to buying a home, a few thousand-dollar appliances quickly add up – especially if you just spent most of your cash on a down payment.
Similarly, unless you negotiate it as part of your home purchase agreement, you’ll also be on the hook for any immediate improvements the home needs.
Unfortunately, these costs are the least hidden you may encounter.
When purchasing a home, it’s strongly recommended that you hire a home inspector (this costs money, too!) to ensure the home isn’t going to collapse the next time it rains. Inspectors look for bad electrical wiring, weak foundations, wood rot, and countless other problems.
Worse still, these problems are rarely covered by home insurance. If an inspector discovers a serious problem, you’ll then have to decide if you still want to purchase the home. Either way, you’ll be out the cost of hiring the inspector.
Another cost is your own comfort. It’s easy to not think fully about what you are expecting from your new home until after you move in.
Are you used to having cable television? If so, is your new home wired for cable? It’s much harder to watch a technician crawling around punching holes in your walls when you own those walls.
Because you’re likely moving from the world of renting to the world of homeownership, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup.
The only way to face the unexpected and unknowns of home buying is with research and planning. This starts with budgeting before house hunting, and should continue throughout your search.
Look at homes in your budget that need improvements, then research how much those improvements could cost.
Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.
There is really no upper limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house you could be slapped with a much higher home insurance payment, effectively making the house more expensive in the long run.
This is where preparation comes in. Research home insurance and property prices in the areas you’re house-hunting to make more educated decisions before you ever make that first offer.
Clearly define how much you intend to put toward your down payment, then look at how much cash that leaves you with for improvements and even minor costs, like changing the locks. That way when you find a house at the high end of your range, you’ll know to walk away if it requires you to buy a new washer and dryer or upgrade the HVAC system.
Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget, or you could easily end up being house poor.
Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into.
- Insurance FAQs for First-Time Home Buyers
- First-Time Home Buyers Guide to Making an Offer
- Down Payment Savings Tips for Renters