Buying a house is expensive—but it might cost even more than you think, especially for first time home buyers who are dipping their toes in the real estate market for the first time. There’s a lot more to the final costs than the mortgage and down payment. The transitional period from renting to owning is a costly one, no matter how you look at it. It’s easy to quickly see that a monthly mortgage for X amount might be the same or lower than your rent, but don’t count on that as the only factor when considering your finances.
Don’t forget about the cost of inspections, which is an absolute must when buying property. As a potential home buyer, you’re the one responsible for this sometimes high cost—not the seller. This is often required before any lender will even approve a loan, so there’s no getting around it. It’s frustrating, because you’re not 100 percent sure you’ll even get the loan, and home inspections can cost up to $500. That’s a lot of money, especially in cases where that might be a big chunk of your current monthly rent. However, know that those inspections are comprehensive and include the foundation, electrical system, roof and other key areas. But the downside? If the house turns out to have a major flaw and you decide to walk away, that’s money down the (probably rusty) drain.
You’ve got the Keys! Now What?
Don’t think that the actual price of the home is the only real fee associated with it. Closing costs can easily run into the multi-thousand dollar range. They encompass a variety of things like credit checks, attorney fees for filing paperwork that transfers property, notary fees and other incidentals. Generally speaking, closing costs range from two to four percent of the home cost, so plan accordingly. Many times, closing costs can get encompassed into the actual mortgage. That means fewer up front costs, but it also means you’ll be paying interest on it.
Immediately upon purchasing a house, homeowners insurance is crucial. This is often required before you’re legally allowed to move in. Just like car insurance, homeowners insurance is required because you’re now a liability in the eyes of the lender. Insurance costs vary from company to company, so comparison shop and get as many quotes as possible. You may need more insurance, such as flood or earthquake, if you live in a high-risk zone (or simply if you want more protection). Start with your current renter’s insurance company, since they might give you a competitive rate to keep your business.
After the Housewarming Party
It’s been a few months since you moved in. Surely you’re in the clear now, right? Wrong—don’t forget about property tax. Unlike renting, you have to pay an annual tax just for owning property. The rate varies widely from state to state and city to city, and is designed to pay for nearby services such as sewers, roads and schools. To know what your future tax will be, contact the local tax office. It’s possible that the property is being overvalued, and it’s always worth a shot to challenge the assessment.
Finally, don’t forget maintenance. There’s no more landlord to call for a clogged sink, burst pipe or when that tree falls onto the roof. You’re 100 percent responsible for everything. Independence comes with a price, but many homeowners think it’s worth it. After all, you want to keep the “sweet” in your home, sweet home.