10 Unexpected Costs for First-time Home Buyers

Published on 2021-12-01

Purchasing your first home is a thrilling and unforgettable experience. However, because you’re focused on closing and getting into your new house as soon as possible, it’s easy to be ignorant about the unforeseen fees that come with being a homeowner. When it comes to buying a property, many first-time buyers misjudge how much money they’ll need to save and neglect to factor in the other expensive add-ons. Getting into the real estate market isn’t cheap, so familiarizing yourself with the prices ahead of time is a good idea.

Moreover, you don’t want to fall in love with a home, only to discover that living there is beyond your budget. Here are 10 unexpected costs to watch out for if you’re a first-time homebuyer.

1. Closing Costs

Closing is the last step in the mortgage process and it can be a very unpleasant experience, especially if you are surprised at the last minute. You’ll have a closing meeting once your house purchase is completed to sign your final papers and pay for a laundry list of fees, including:

  • Attorney’s fee
  • Loan fee
  • Title insurance fee
  • Escrow tax contribution
  • Recording fee
  • Mortgage interest

All of those costs might add up quickly. The problem is that you won’t know exactly how much your closing costs will be until you find a home and have an offer accepted. The loan application will then be processed, and you will learn more about your expenses.

This is why it’s always a good idea to save more money than you think you’ll need and ask the seller for a closing cost credit to help you out.

Furthermore, it is critical to educate yourself on the unique state laws for closing fees. Some states enable the seller to cover some or all of the closing expenses but to be safe, plan on paying 3% of the home’s worth at closing.

2. Property Taxes

Property taxes aren’t only different in each state. They also vary by city, and the taxes increase or decrease based on the county or neighborhood. However, don’t make the mistake of believing your property taxes will never change.

When you’re considering a home, it’s crucial to look into property tax rates and changes in prior years. This will help you limit your overall housing costs between 20% and 25%. Calculate your projected annual property taxes by visiting the county property website, dividing it by 12, and adding it to your estimated monthly payment.

The general idea is to keep your home costs below 30%, but because property taxes fluctuate, you’ll want to leave yourself some wiggle room.

3. Home Maintenance

All landscaping, water heater repairs, and maintenance are now on your to-do list as a new homeowner. If you’re a first-time homeowner, you’ve probably never had to worry about mowing the lawn or mowing the grass on the other side of the sidewalk. You’ll need to set aside an extra budget to purchase home maintenance equipment. If you reside in a colder region, you may need to invest in a snowblower to aid in the clearing of snow during a heavy snowfall.

Tip: Make a list of upgrades and sort them into categories based on their importance. Some maintenance tools may be required, but cabinetry and other upgrades can be postponed until next year. You can keep prices down and recoup part of your investments if you prioritize the repairs.

4. Utilities

When you own your house, you’ll be responsible for paying all utilities, including the Internet, sewage, water, gas, recycling, garbage, TV, and electricity, as well as setup fees.

The truth is that your utility bills can be just as costly as your property taxes. The fact that these expenditures are seasonal has a huge impact on how they look as an unexpected expense. Additionally, depending on the state where you previously rented an apartment, you may or may not have had to pay for hot water.

According to national research, energy costs account for 5–22% of a family’s total after-tax income in the United States.

Tip: Examine the most recent utility bill of a parent, coworker, or acquaintance who owns a home in the same county you’re considering. When it comes to estimating unexpected utility costs, this type of real-world comparison is really useful.

5. Insurance

Although insurance is complicated, it can be divided into three categories: mortgage insurance, homeowners insurance, and supplemental insurance. Homeowners insurance is required by law for all property owners. It assists in the payment of repairs, protects your goods, and shields you from liability claims. Before processing your loan, many lending institutions will need you to acquire homeowners insurance and pay for a year’s worth of coverage.

Your lender is unlikely to ask you to pay mortgage insurance if you put down more than 20% on a house. Mortgage insurance premiums are added to your monthly mortgage payments, closing expenses, or both if you are obliged to acquire them. 

You might not need to buy supplemental insurance. However, if you reside in a flood or earthquake-prone area, it may be a smart idea, as these are often not covered by regular homeowners insurance policies.

6. Appraisals and Inspections

You can’t, and shouldn’t, avoid appraisals and inspections. Appraisals confirm that the asking price is correct, giving you and your lender some peace of mind. The appraisal, which can cost several hundred dollars, is usually the responsibility of the buyer, though you may be able to negotiate these fees with the seller.

Home inspections are different from appraisals and provide additional protection to home buyers. They can keep you from being caught off guard by things like leaking pipes or termites. You’ll want to be aware of these difficulties before closing because they can influence your purchasing decision and provide you with bargaining leverage. You may be able to urge the seller to remedy the situation before closing, or you may be able to negotiate a lower asking price. Oftentimes, the home inspection is included in the buyer’s closing costs.

7. Escrow Fees and Account

Escrow officers, who are usually lawyers or representatives from title companies, act as an independent third party to guarantee that the closing process runs well and that everyone is paid. Unfortunately for home buyers, this means that the escrow officer must be compensated as well. Escrow fees are usually split evenly between buyers and sellers.

Your lender may require an escrow account in addition to the escrow fee to pay your insurance and property taxes. Many lenders want this account since it ensures that these fees are paid on time. Your insurance and tax costs will be estimated annually by the lending institution, then divided into monthly payments and rolled into your monthly mortgage payment.

8. Furniture and Decorations

You may need to purchase additional furniture if you are moving into a larger home. This isn’t going to be cheap, especially if you need to buy a new sofa.

You may also discover that you need to spend money on house decor. If you don’t like the previous owner’s decor or it doesn’t go with your furniture, you may have to spend more money to change it.

These hidden unforeseen expenses can add up quickly, but there are certain things you can do to cut down on them. Going to garage sales or looking on platforms like Facebook Marketplace or Craigslist could help you save money on furniture.

9. Stamp Duty

This is a state-imposed tax that you must pay when purchasing a home. The amount you pay is determined by the state where your new home is located, as well as other considerations such as the purchase price and if it is an investment property.

Stamp duty can range from a few hundred dollars to tens of thousands of dollars. However, some places provide reasonable discounts to first-time home buyers. In Victoria, for example, first-time homebuyers don’t have to pay any stamp duty on properties up to $600,000 as long as they plan to live there for at least a year. Following that, they are eligible for a lower stamp duty fee.

10. Moving Costs

You now have to pack up and move into the new house after weeks of hard work, negotiating, and paying fees. Moving charges could be the icing on the cake if your budget wasn’t already drained following closing costs.

Once you’ve settled in, you’ll have to pay for deep cleaning, movers, moving supplies, transportation for your belongings, and even food. To budget for these costs, get quotes from your moving company ahead of time. This will help you set a budget based on your plan.

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Final Thoughts

Many first-time buyers underestimate the costs of homeownership. These expenditures are in addition to the down payment, closing costs, and other expenses that come with purchasing a property.

Despite this, buyers must be prepared for the potential hidden costs of homeownership. As a result, they should not overextend their financial resources when purchasing their first property. This is why putting down a substantial down payment and having a well-funded emergency fund is ideal. This way, you won’t have to worry about funds.

Written by Chris Townsend

Chris Townsend

Chris Townsend is a moving professional and relocation expert that has more than 10 years of experience in the moving industry. With a background that includes working in virtually every aspect of the company, he has distinguished himself as an integral part of our operations with expertise in all things related to moving.

If you have any questions about moving, our services, or anything else you think he may be able to help with, you can contact Chris by emailing him at Chris@threemenandatruck.net

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