So, the time has finally come. You’ve worked your butt off, have stuck to your budget, and now you’re ready to buy a home. Congratulations! You’re one step closer to calling your dream home yours.
However, when buyers consider the cost of buying a new home, they’re typically only taking into consideration their mortgage payment. But, there are a lot of additional costs that you need to consider, too. While some of these may be one-time costs, others may be recurring. Below, we will break down 6 hidden costs to consider when purchasing a new home.
When it comes to purchasing a new home, the biggest and most obvious thing to consider are the closing costs. Keep in mind, your closing costs can vary greatly depending on which type of house you are looking at. As a rule of thumb, consider your closing costs to be anywhere from 2-5% of your purchase price.
Within your closing costs, you will have to consider the following:
- Inspection Fees
- Appraisal Fee
- Title Insurance
- Escrow Fees
- Loan Application Fees
According to Nerdwallet.com, “the most cost-effective way to cover your closing costs is to pay them out-of-pocket as a one-time expense.” While you may be able to fold them into your loan, you’ll end up paying interest and therefore, spending more.
While property taxes may cost you a chunk of money, it’s also important to assess how this may work in your favor in the long run. With the market being such a hot commodity right now, it’s important to consider the rising value of the property. This means that, if you purchase a home, there’s no way of knowing whether or not your home’s value will change over time. If it increases, you will end up receiving supplemental tax bills to make up for the taxes you weren’t paying beforehand.
But remember, your home’s value rising is a good thing! If your home’s value ends up being more than it was originally assessed at, you will be at a better point financially should you ever decide to sell your home.
Remember, utilities are a recurring cost, so it’s important to determine the average you are spending each month to make sure you have enough set aside while still living comfortably. Typical utility costs for homeowners will include things such as gas, electric, water, cable/internet, and HOA fees, if applicable.
Luckily, most people already have this part down to a tee. Chances are, you've already grown accustomed to paying utilities if you were renting. However, when you purchase a new home, there may be additional utilities are are paying for that you might not have been before. It's always a smart idea to see the bigger picture of the overall cost to maintain it with more ease.
Private Mortgage Insurance
For those of you who are planning on purchasing a home with a conventional loan, meaning you will be putting down less than 20%, your mortgage lender will require that you pay private mortgage insurance. “Like other kinds of mortgage insurance, PMI protects the lender-not you- if you stop making payments on your loan.”
Luckily, there are several different ways to pay for your private mortgage insurance, so you can pick and choose what will work best with your finances. While the most common way to pay PMI is through a monthly premium, you also have the option to choose a one-time up-front premium or a combination of the two.
Just remember what we mentioned above, private mortgage insurance protects the lender. This means that, if you fall behind on your payments, PMI will not protect you. So plan accordingly!
Maintenance and Repairs
Ah yes, maintenance and repairs. The end-game typically replicates something you see on HGTV, but the road to getting there may be costly. Typically, home maintenance and repair costs vary depending on the age of the home you are buying.
For newer homes, you may only need to worry about general upkeep. However, if there are larger, structural issues in the home you are purchasing, this can cost a pretty penny to fix. If you are someone who loves DIY and projects, this might be a challenge you are willing to take on. Nevertheless, it is important to assess what improvements or changes you will be making to your new home and work these updates into your home at a pace that doesn’t break the bank. Our advice? Start with what needs the most attention first, and save the aesthetic updates for later on.
Although this is a one-time cost, there can be a pretty big price tag attached depending on the distance you are moving. While moving down the street means you can trade the help of your friends and family for a free meal, it isn’t always that easy. Oftentimes, you will need to rent a vehicle to move all of your belongings or may consider hiring professional movers to ensure all of your things arrive in one piece.
Whatever it may be, we recommend putting on your thinking cap and thinking of ways you can save during your move. This means tossing what you don’t need, selling items that could be re-homed elsewhere, and more!
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