Three Expenses to Prepare for When Buying a New Home
The prospect of new homeownership is exciting. You've probably been planning for this purchase for a while — saving money for a down payment and calculating how large of a mortgage you can afford to take out. However, one common mistake new homebuyers make is failing to plan for the additional expenses associated with the purchase and with homeownership. Here are three such expenses you'll need to account for during your saving and planning phase.
Your down payment is not the only cost you'll need to cover when you purchase a new home. There are also a number of other fees and expenses you'll need to pay for on or before your closing date. These include:
- Home inspection fees
- Underwriting fees
- Surveying fees
- An appraisal fee
- Title insurance costs
- Recording costs
In some jurisdictions, you may also be required to pre-pay your property taxes for the coming year. A good way to estimate your closing costs is to assume they will be about five percent of the home's total cost. So, for example, if you buy a $200,000 home, you can expect to pay about $10,000 in closing costs — and that's on top of your down payment. Prices vary by region, and your real estate agent can likely give you a more accurate estimate of your expected closing costs based on the neighborhood you're buying in, the condition of the homes you're looking at, and your budget.
If you considering new homeownership in a community that is overseen by a homeowner's association, or HOA, you will need to account for HOA dues. Many HOAs require that your annual dues are paid upon purchase of the home. They may prorate your dues for the first year if you are buying in the middle of the year. Other HOAs require monthly dues payments, which is something you will need to budget for when determining how large of a mortgage payment you can manage.
HOA fees vary by community, but they are usually between $100 and $300 a month. These fees pay for community amenities, the upkeep of the general neighborhood, and enforcement of any HOA regulations. The more amenities a community offers, the higher the HOA dues will be. Make sure you carefully look over the HOA contract for the community you are considering buying in to get a thorough picture of the costs involved and when payments are due. Also check for any upcoming projects that may require additional fees to your regular HOA fees. This is common for HOAs without a large cash reserve
Updates and Repairs
If you are shopping exclusively for newly built homes, then you can expect to make very few repairs in the coming decade. However, if the homes you're thinking of buying are not brand new, then you will definitely want to prepare for update and repair costs.
Chances are, there are some changes you'll want to make as soon as you move in. Maybe the old homeowners thought painting the living room bright yellow was a good idea, and you want to paint over it with a nice gray. Or maybe the washer and dryer are outdated and burn through a lot of energy, and you want to replace them with energy-efficient options. Make a list of the updates you want to make, and research the cost of each one so you can budget accordingly.
You should also save at least $5,000 for emergency home repairs. You never know when your furnace, hot water heater, plumbing, or other components will decide to give out on you.
If you take these costs into account when planning for new homeownership, you'll face fewer financial surprises along the way. You'll also get a better idea of what you can truly afford in terms of a mortgage.