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If you’re like many prospective homeowners, you’ve calculated the cost of renting and compared it with a potential mortgage payment. Oftentimes, a mortgage payment will be lower than your current rent, and you’ll be building equity in the home, so your payments will be going towards a future investment.
In many cases, a home purchase can equal savings, but the mortgage payment isn’t the only cost to consider. Here are some expenses to prepare for when buying a home.
1. Closing Costs
Closing costs are the final fees associated with processing and closing the purchase on your home. They include lawyer fees, origination feeds, prepaid interest, recording fees, escrow fees, realtor fees, and other costs associated with paperwork and filing.
These fees will vary depending on the size and type of purchase, but you can usually expect to pay about 2-3 percent of the purchase price at closing. This money will be due at closing, and unless you’ve negotiated for the seller to pay a portion of closing costs, you’ll need a huge check upfront.
2. Homeowner’s Insurance
Most first-time homeowners are expected to pay the first year’s premium of home insurance upfront. This means you could be paying anywhere from $500 to $2500 to cover your premium.
The money will be put in an escrow account and your lender will apply these funds to your insurance payment on your behalf.
3. Property Taxes
This is a cost that will never go away. It’s a monthly expense owed to the city, even after you pay off your home. In most cases, your lender will escrow property taxes into your loan payment, but sometimes they’ll ask you to make your property tax payment up front.
The cost depends on the size of your property and where you live. It could range from several hundred to thousands of dollars.
4. HOA Fees
Not every neighborhood has a Homeowner’s Association, but those that do will require a regular payment to keep the neighborhood looking nice. Sometimes this will be escrowed into your monthly payment through your lender, and sometimes it will simply be a monthly check you need to make. Keep this in mind on top of your regular expenses.
5. Yard and Landscaping
You might want a large yard, but don’t forget about the cost to keep it up. You can probably handle some of the work by yourself, but it’ll take time that you might not have. It also requires equipment, which you’ll have to purchase if you’ve lived in an apartment or condo your whole life.
Oftentimes, it’s easier to simply have someone else handle your landscaping and yard work for a monthly fee. Factor this into your costs.
6. Utility Bills
If you’re moving from a small apartment to a house, you’re living space will probably increase. This means higher utility bills on top of your monthly mortgage payment.
To get an idea of what you’ll pay for gas, water, garbage, sewer, electricity, etc., contact each company and ask what they have on record for the average monthly bill for that address. It might not perfectly reflect what you’ll spend, but it will give you a good idea.
7. Renovations and Maintenance
Homes require regular updates and maintenance, whether to appease personal preference or to fix what’s broken. Some updates can be ignored for a time, but repairs like plumbing, electrical, and more should be repaired right away. You can’t simply call the landlord when something breaks.
8. New Furnishings
When your living space increases, you’ll likely need (or want) new things to furnish it. A single sofa and loveseat set may no longer be enough when you have two living spaces. Factor in the new decorations and furnishings you’ll likely want to add to your property.
In addition, most homes come with appliances, but not always. You may need to buy new appliances or replace existing ones that are in bad shape.
If you’re lucky, your home will be adequately cleaned before you move in. If not, it’ll be up to you. This will take either a lot of personal time or an expensive cleaning crew.
Sometimes, it’s nice to have a space thoroughly and professionally cleaned before moving in so the space feels new.
10. Hidden Updates
Don’t forget about the maintenance and remodel surprises that often surface after you move into a house. It’s nice to think that everything will be caught in the home inspection, but there’s often a lot going on behind the walls that you don’t know about.
It’s always smart to keep an emergency fund on hand in case something unexpected arises. You’ll be grateful for the ability to pay the bills when it does.