How a Realtor Makes Home Buying Easier
Buying a home is one of the most significant financial decisions you’ll ever make, but the process...
First-time home buyers are often surprised (or shocked!) by the costs that they did not anticipate. Think about it this way: what if you bought a dog? Great! He’s home, and you’ve both found your new best friend. But he needs vet checkups and vaccinations. He needs a license, leash, collar, food, dishes, treats, and toys. And you may need to add a vacuum that can handle pet hair to the list. The point is that the cost of adopting your dog was not the total cost of owning him. You encountered other expenses immediately. This is just like buying a house - albeit on a much different scale!
When you are fully aware of first-time home buyer expenses, you can plan for them so they are an expected part of your budget instead of an unwelcome surprise.
First-Time Home Buyer Expenses You (Probably!) Planned For
Ok, these are not unexpected. You know you are going to need to cover:
The Down Payment.
The days of 0% down are behind us. After the 2008 crash, lenders tightened their requirements: while 20% is the gold standard (and best when it comes to securing the most favorable mortgage terms), the US average is about 7% down. If you are working with a program like the FHA first-time buyer incentive, you can decrease this expense.Closing Costs.
What are closing costs? The last hurdle before getting your keys! They include a variety of expenses, including preparation fees, document origination fees, attorney’s fees, etc. You may be able to negotiate these costs down with the seller, but you should plan on paying 3-5% of your home’s purchase price. Learn about rolling your closing costs into a home loan.Real Estate Agent Commission.
The commission is usually 5-6%, though this depends on the area in which your home is located. This is usually split between the buyer’s and seller’s agents.So, now what about the first-time home buyer expenses you may not have anticipated?
Unexpected Costs of Buying a House for First-Time Buyers
Be prepared for:
Title Insurance.
What? Really? I have to pay title insurance? What in the world is title insurance? This one often catches first-time buyers off-guard. When you purchase a home, your closing attorney will check the title to the home to ensure that there are no liens against it or if there are any judgments, encasements, or encroachments. In other words, they need to make sure the previous owners are free and clear to sell the house to you.For example, say that a seller purchased the house with his sister, with whom he has become estranged. He didn’t get her signature when selling, and this can lead to big problems for you. Usually, a title search will uncover this. If it doesn’t, title insurance is your safety net. It protects you against any issues that could come to light later. Do not scrimp here: you need this peace of mind and protection.
Earnest Money.
In some cases, you may have to offer earnest money to the seller when you make your offer. This indicates that you are serious about your offer, giving them reassurance that they can take their house off the market. Now, if your offer is accepted, the earnest money is applied to your down payment or closing. If your offer is not accepted, it comes back to you. Plan on 5% of the asking price (but the more, the better).
Homeowners’ Insurance.
That comfy couch that you’re going to binge watch Netflix on after a long day, the dishwasher that will save you hours of chore time, the HVAC system that keeps you all safe and comfortable… all of these are important. But nothing is more essential than homeowners’ insurance. This policy delivers peace of mind. If the unthinkable happens, you are covered. It’s also a practical matter as your lender won’t give you a mortgage without an appropriate policy.
Property Taxes.
As a renter, your landlord handled property taxes. Now it’s up to you. Property taxes are usually about 1-2% of your home’s value annually, but this varies based on your area. Typically, your lender will roll your property taxes and homeowners’ insurance into your mortgage payment, which can be a huge convenience.
Home Maintenance.
You have a plumbing emergency or a heating crisis at midnight? Who are you going to call? Not the landlord… home maintenance and repairs are all up to you now. Having a thorough home inspection before purchasing is essential - it’ll alert you to big problems, such as the roof or heating system. But other repairs are a normal and inevitable part of homeownership. Be prepared for things that go bump in the night - and any other time of day they feel like it. Make sure you have a cushion built up in your savings.Appliances.
Does your home come with a refrigerator, washing machine, dryer, dishwasher, and other important appliances? It may - and they may need replacing. Or it may not. In either case, you should also take a look at the costs of new appliances and build that into your budget.Furnishings.
If you’re moving from an apartment, you can simply pack up your belongings and set up house. You may need to buy new furniture, however, to make your home as comfortable as possible. This can be done on an “as I can” schedule, and you can pick up pieces as you are able. If you do not have any furnishings, plan on buying an air mattress and going shopping! If your budget is restricted, go thrifty with second-hand items.All the Stuff.
Do you have plates to eat on? Back up... do you have pots and pans to make yourself dinner? Or a screwdriver if you need to tighten a nut on your kitchen sink? Think of all the little things that go into a home: dishes, utensils, basic tools, etc. And how about curtains? Linens? Throw pillows? This is the fun part: you get to outfit your home with all the finishings you want plus some essential tools (screwdrivers, hammer, wrench, etc.) for the occasional odd job.Thinking about first-time home buyer expenses? You don’t have to go this road alone. Visit Homes & Land for a ton of great resources to help you navigate this complex process.
