Last Updated on April 6, 2022 by Luke Feldbrugge
Buying a home is one of the most significant purchases you will make, so it’s likely you won’t take the process lightly. While many would-be homeowners take the time to plan out financing for a home, some may not be budgeting appropriately, and accounting for the extra costs for buying a home many potential buyers may not be aware of!
First-time homebuyers have tried just about anything to get a leg up on other home buyers in this highly competitive market. That has sometimes meant waiving contingencies, such as home inspections, a move that can add more risk to your purchase. Skipping the home inspection means you may not learn of something not working in the house until after you’ve moved in. This can lead to sudden unexpected costs.
But market experts say that homeowners should already be budgeting for unexpected costs as part of purchasing a home. So, how much should you budget?
Plan and Budget for Ongoing Home Repairs
The price for things like home repairs has soared in the current economic environment. Hyojung Lee, a professor at Virginia Tech where he studies the impacts of demographics and neighborhood changes on the housing market, cites a 1 percent rule of thumb in this NPR article. Lee said that breaks down to spending an annual 1% of your housing value.
So if the home you buy costs $400,000, be sure to budget $4,000/year for ongoing repairs.
If you are looking to get on the housing ladder as a first-time home buyer and you’ve previously only rented, you should know that homes also come with the cost of property tax apart from maintenance. Property taxes are paid to your local government, but chances are good; your mortgage lender will collect them. If that’s the case, the mortgage servicer determines your annual property tax cost, divides that amount by 12 months, and adds that amount to your monthly payment into an escrow account. The mortgage servicer pays them out of your escrow account when your taxes come due. That means you aren’t hit with a hefty annual tax bill you can’t pay.
Homeowner Insurance Cost
Homeowner insurance is another cost added to your mortgage principal and interest payments. The rate you pay will fluctuate depending on what region you buy your home in and what terms you negotiate.
FHA and VA Loans Help with Costs
VA and FHA loans are good options to help with costs especially when cash is hard to come by. They will help you negotiate with home sellers on a purchase price and terms you can afford on the home you want.
Save on Home Buying Costs with Homes for Heroes
Be sure to consider signing up to use a Homes for Heroes real estate and mortgage specialist. They can help you save an average of $2,400 when you purchase a new home.
Understanding these extra costs for buying a home can help you be better prepared and more successful as you search for financing options and a new home.