What Are The Costs of Home Ownership?
When you have never purchased a home, there can be surprises along the way. One of the most common is buyers not understanding some of the costs of home ownership.
Financial surprises are the worst feeling. Anger and frustration can set in, which makes the home-buying process less enjoyable.
We will be going over all the most common home buyer costs when making a purchase. These tips will help first-time buyers create a better budget.
By understanding these costs, there will be no unexpected expenses. There are upfront and ongoing expenses when buying. You’ll get an excellent understanding of both.
Upfront Costs When Purchasing a Home
Earnest Money
As a show of good faith, buyers need to put down earnest money when buying a home. The earnest money assures sellers that you’re serious about buying their property.
The amount of earnest money varies from 1-5% of the purchase price, depending on the market, seller, and location.  The listing brokerage or title company usually holds these funds in escrow. A buyer can lose these funds when they do not follow the contract terms.
Down Payment
The down payment is often the biggest burden to overcome and one of the more significant expenses.
Generally, buyers must pay at least 3.5% of the purchase price to secure a loan. Buyers with lower credit scores may need to put down 5-10% of the purchase price.
For those who do not have the funds for a down payment, a few no-down payment programs are available. These include VA and USDA loans. VA loans are reserved for those who have served in the military. USDA loans assist borrowers who are purchasing in rural areas.
FHA loans are available to those with lower credit scores and have a low down payment requirement of 3.5%.
Researching all loan options to find the best fit for your situation is important.
Closing Costs
The closing costs can make up a significant expense when buying a home. You should pay 3-5% of your home’s purchase price on closing costs.
The closing costs charged by the mortgage lender can include costs for paperwork preparation, real estate attorney fees, and title insurance.
Understanding your closing cost expenses is something the lender you choose should explain upfront.
Moving Costs
Moving is an expense you should never forget as a first-time home buyer. Unfortunately, moving is expensive. If you hire moving professionals, you should plan on spending thousands of dollars. The more significant the move, the more expensive it will be.
You can reduce your moving expenses by making a DIY move and renting a truck. Perhaps you can ask friends for assistance.
Even finding free moving boxes vs. paying for them can be helpful.
Ongoing Expenses With Owning a Home
While you will have upfront costs when buying a home, there will also be ongoing expenses.
Property Taxes
Property taxes are an unavoidable expense when owning a home. Homeowners must pay taxes on their property’s value each year. The amount of the tax is usually based on the home’s assessed value.
Property taxes fund schools, local government services, and other public services.  The property tax you pay will vary depending on where you live. In some areas, the taxes are lower than in others.
Additionally, some states such as Florida offer tax breaks for homeowners. It’s important to research the property taxes in the area before you buy to get an idea of what you’ll be expected to pay.
It’s also a good idea to get an estimate of the amount of taxes you’ll be paying each year. This will help you budget for the home and avoid any surprises.
Home Maintenance Expenses
Home maintenance expenses are ongoing costs that buyers need to account for when budgeting.
These expenses include repairs, lawn care, snow removal, and other upkeep. Buyers must plan for these expenses yearly to ensure their home is in good condition and running correctly.
Budgeting for these expenses and planning for the unexpected is important. Homeowners should set aside money to cover any emergency repairs that may arise. Additionally, homeowners should inspect their homes regularly to identify any potential issues.
Overall, home maintenance expenses are a vital part of budgeting. These expenses should be taken into consideration upfront and accounted for each year. Buyers can ensure their property is well maintained by planning for potential repairs and unexpected costs.
Homeowner’s Association Fees
If you are buying into a neighborhood with an HOA, it is essential to understand the monthly costs.
HOA fees cover the maintenance and upkeep of the neighborhood, such as landscaping, pools, and other amenities.  The HOA fees will vary depending on the size of the home, the number of amenities in the neighborhood, and the monthly budget for the HOA.
A homeowner’s association should provide a detailed breakdown of the fees and a budget for the upcoming year. This will allow potential homeowners to understand their monthly expenses and plan accordingly.
Understanding the associated living costs in a neighborhood will allow potential homeowners to budget accordingly and ensure they are comfortable with the monthly expenses.
Home Insurance
Home insurance is an essential expense for any homeowner. This type of insurance covers damages to the home, liability for any injuries on the property, and other losses.
The amount of coverage and the type of policy will vary depending on the homeowner’s needs.
Shopping around to get the best price and coverage is always worthwhile. If you bundle your home insurance with whoever does your vehicle, you’ll likely get a significant discount.
Home insurance is an ongoing expense and should be considered when budgeting for a home purchase. It is also wise to check upfront if the property requires flood insurance.
If the home is located in a flood plain, you must have it. Unfortunately, it is a significant expense that can add thousands of dollars each year to your costs.
Final Thoughts on the Costs of Home Ownership
Understanding all of your costs when owning a home is valuable to know. It will go a long way in helping you to determine whether you truly can afford to purchase a home versus continue renting. Hopefully, you now have a much better handle on what to expect.