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Closing is the final step in the purchase of a home, and can therefore be overlooked as a costly part of the process. Many first-time homebuyers are surprised by how much closing costs amount to be. Closing costs are made up of title insurance, legal fees, mortgage interest payments, escrow payments, lender application fees, and recording fees paid to the county clerk’s office. These various categories may not seem like much individually, but when added up they can be surprising to people who have never experienced a closing. Buyers should budget for between 2-5% of the purchase price of the home in closing costs.
The cost to maintain a home can be shocking to first-time home buyers. Whether it be unexpected repairs or routine maintenance, homes require a significant financial commitment. Some common items that may need repairs include the HVAC, roof, and water heater. These repairs are many times unexpected and are very expensive. Common routine maintenance includes yard care, gutter cleaning, pressure washing, and house cleaning. These items can be budgeted for, so therefore homebuyers need to research the costs associated with them before purchasing the home. It is estimated that homeowners need to budget around 1% of the cost of their home each year for the upkeep of the property.
Every homeowner has to pay property taxes on their home. The cost associated with property taxes varies greatly depending on the value of the home and the location of the property. Property tax rates vary by state and by local location. Each city and county has its tax rate. This variation can make it very difficult for first-time homebuyers to know how much their property taxes will be. In addition to location, property taxes are also determined by an assessment of the property. If a homeowner believes their assessment is incorrect, they can file an appeal. This can be completed by the homeowner or a legal professional, depending on the comfort level of the homeowner with the legal system and tax assessments.
Utilities are an expense that can oftentimes be forgotten by first-time homebuyers when they are budgeting for their home. While renting a property does require paying some utilities, there are usually more of these bills as a homeowner. Homeowners are responsible for monthly payments and setup fees. Utilities include water, sewage, trash, recycling, electricity, gas, TV, and internet. These utilities vary based on the size of the home and by the provider. To get an estimate of what utilities will cost every month, homeowners can talk to a friend or neighbor who is a homeowner to find out how much they spend.
Homeowner’s insurance protects homeowners financially in the case of a major disaster such as a fire, flood, or property crime incident. If a homeowner uses a mortgage to purchase the property, homeowners insurance is required by the lender. It is also strongly encouraged for people who purchase a home using cash. While insurance helps to protect from financial ruin in the case of a disaster, it is a major expense for homeowners. Many first-time homebuyers either underestimate or do not account for at all when they are purchasing a home. Homeowners can expect to spend over $1,200 a year on insurance.
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