So you have finally saved up enough money for a deposit and you are ready to get that first home. Congratulations on reaching this goal but you need to be prepared. There are a lot more expenses ahead, ones that you might not have thought about. Take a minute and learn about the top expenses that you might not have planned for.
1. Home Inspection
Once you find that perfect property, you are going to want to get an inspection done. A general inspection and a termite inspection are a good idea so that there are no surprises in store for you. You are looking at an easy 400 dollars for these services so add them to your budget. This is for each home you put an offer on, so if one deal falls through, you will have to pay for the inspection on another house.
In addition to the general and termite inspections, there are also other inspections that you might need, depending on the type of property you buy and its location. If you are in the country, for example, you will probably be in septic and should get a septic inspection. Other special inspections might be needed if you have a pool or need to test the soil or paint for lead.
2. Home Insurance
Have you calculated enough home owners insurance into your budget. Home insurance starts at around 1200 dollars a year but it can go up sharply from that. If you have an older home, way in the country, you could end up paying triple that amount.
Insurance prices are determined by the amount of risk that your property presents. New homes will have the cheapest rates because, well, everything is new. The roof is the main savings. If you have an older roof on your home, expect to pay more for insurance. Also, if you live far away from a fire station and/or a hydrant, your insurance will go up. The riskier your home, the more you will pay.
Before you commit to a home, get a quick insurance cost to see how much it will cost to insure it.
3. Utility Deposits
You will have to get a lot of things connected to your new home including electricity, water, trash service, internet and perhaps satellite or cable. A lot of these services are going to require a deposit, no matter how good your credit score is.
Go ahead and budget around $200 per service, just to be safe. It is far better to be over prepared than to be stretched thin financially after close.
4. Maintenance Costs
Unless you are buying a brand new home, there will probably be some immediate maintenance issues to take care of. Even the best seller will have missed a few things that need attention.
Before moving into your home, you may need to caulk and paint, clean the carpet, have the dryer vent cleaned, chimney swept, etc. There are a lot of little things that a home needs that the seller is probably not going to take care of.
Budget at least $500 for surprise maintenance expenses. There is always something that comes up.
Close to closing time, you might be offered points on your mortgage. In general, a point will cost you 1 percent of the loan amount. That point will get you an interest reduction of a quarter of a percent.
You may want to save pan on paying for points but the decision depends on how long you will be in your home. Take the interest savings and calculate how much you will save per month. Then divide your savings into the cost of the point. That is how many months you would have to stay in your home to realize a saving. If you plan on being in your home longer, buy the points.
It takes a long time to get the benefit from buying points, so if you are only going to be in your home for 3 or 4 years, it is best to pass on them.
6. HOA Costs
If you live in a community with an HOA, consider the added cost carefully. This is usually paid outside of your mortgage and not included in the escrow payment.
A very basic HOA that takes care of common areas can easily cost you $100 a month. The more services that are provided, the more you pay. If you are buying a townhouse or condo, this bill could easily surpass $400 a month.
You know that there will be taxes and they have been calculated into your mortgage payment. What you might not know is that those taxes are probably going to go up substantially the next year and you may end up with an escrow shortage.
Your current escrow payment is based on last years taxes. When you but a home, the county is going to take advantage of the opportunity to increase the homes value on the books up to market value. This will result in an increase in taxes and your escrow is going to go up next year and you will need money to pay for it.
Have a little money set aside to pay for the shortage and avoid a huge mortgage payment increase. That or pay a little extra each month into your escrow account.