Embarking on the journey of homeownership is a thrilling adventure that culminates in a place you can call your own. Visions of cozy evenings curled up in your curated space often take center stage, but beneath the surface lies an ocean of unexpected financial considerations.
While you might be aware of standard expenses like down payments and mortgages, there’s a hidden world of lesser-known costs of buying a house that can catch even the savviest first-time homebuyers off guard. Not to worry, we’ll make sure you’re equipped with the knowledge you need to organize your budget, anticipate expenses, and navigate the homebuying process with ease. Let’s get started!
Unpacking the Costs of Buying Your First Home
Before you dive headfirst into the world of homeownership, it’s essential to grasp the full scope of financial commitments required to own your new abode. Beyond the initial down payment, various financial intricacies come with purchasing a home. Bear in mind that the following costs can vary based on certain factors, including your location, specific property, and mortgage loan terms.
Initial Down Payment
The down payment for a home, which can be a significant upfront cost, is the percentage of the property’s price you pay out-of-pocket. Typically, this ranges from 3.5% to 20%, depending on your mortgage type. However, you may be able to pay less or nothing down at all through down payment assistance programs and zero-down loans, options your loan officer can help you navigate.
Homebuying Closing Costs
The closing costs for a home purchase are the miscellaneous fees required to finalize your mortgage, typically falling between 2% to 5% of your loan amount. Homebuying closing costs are comprised of origination fees, appraisal charges, title insurance, and escrow expenses—though there may be additional expenses depending on your location and community. Your loan officer can provide you with a complete Loan Estimate itemizing all closing cost fees.
Residential Home Inspection
A critical step before completing your purchase, a home inspection identifies potential structural or system issues. This preventative measure generally costs a few hundred dollars but depends on the location of the property, the size and age of the home, and the extent of the inspection.
Home Appraisal Fee
Your mortgage lender will require a professional appraisal to confirm the property's fair market value, which typically costs several hundred dollars. This appraisal fee is an essential part of the homebuying process, ensuring that you're making a sound investment and helping your lender determine the appropriate loan amount.
Homeowner's Insurance Premiums
This mandatory expense ensures you're covered before closing the home deal. Factors like location, property age, and coverage level influence the overall home insurance cost. It's essential to carefully review policy options, as it can provide valuable protection for your investment.
Real Estate Property Taxes
These taxes are typically factored into your monthly mortgage payments. Cost can vary greatly based on your new home’s location and valuation. It's important to be aware that property tax rates can fluctuate over time, impacting your overall homeownership expenses, so staying informed about local tax policies is advisable for long-term financial planning.
Moving Expenses
Moving expenses often go overlooked. Whether you're hiring professional movers or renting a truck and doing it yourself, there will be costs involved. It's a good idea to budget for these expenses well in advance and consider factors like packing materials, temporary storage, and any unexpected costs that might arise during the moving process.
Home Warranty Purchase
While optional, a home warranty offers peace of mind by covering the costs of significant repairs or replacements in your new home. If purchasing new construction, this will often be included. It's worth considering a home warranty, especially for older properties, as it can save you from unexpected financial burdens.
Furniture and Home Upgrades
You may need to budget for new furniture and desired home maintenance and improvements, such as fresh paint or minor renovations—particularly if purchasing a resale home. Additionally, investing in high-quality furniture and home upgrades not only enhances the aesthetics of your living space but can also increase the overall value of your property, making it a wise long-term investment.
Mortgage Insurance Fees
If you can’t afford a 20% down payment, you might have to pay private mortgage insurance (PMI), which protects the lender if the buyer misses loan payments. While PMI can increase your initial monthly expenses, as you build equity in your home, you may be able to request its removal, which can significantly reduce your long-term housing costs.
Homeowners Association (HOA) Fees
If your property is part of an HOA or metro district, you'll be responsible for monthly or annual fees. These fees can vary widely and cover various services, including maintenance, landscaping, and community amenities. Understanding the specific costs associated with your HOA can help you budget more effectively.
Lender Fees
A lender fee, also known as an origination fee or loan origination fee, is a fee charged by the mortgage lender for processing and initiating a new loan. They are meant to cover the administrative costs of evaluating, underwriting, and approving the loan application. Lender fees can range between 1% to 2% of the total loan amount.
Navigating the Road to Your Dream Home
The homeownership journey should be an exciting one, and it can be when you know exactly what to expect. Understanding all the top expenses associated with buying a house will prepare you to navigate the challenges involved with buying your first home—and simultaneously, avoid sticker shock.
If you’re ready to take the leap into homeownership, Century Communities is here to help. Our experienced team will guide you through every step of the homebuying process, right up to the moment you step through your new front door for the first time as a homeowner.
Don’t wait! Start your home search today.