From Ash Cash, personal finance expert, speaker and bestselling author.*
With the current global pandemic, a lot of our financial goals have been put on pause as many try to figure out their next move or if now is the right time to make certain life decisions. One of those decisions include becoming a first-time homebuyer. It’s really unclear how this economic downturn will have an effect on the housing market but if I was a betting person I would guess that home prices will drop due to the millions of people who are currently out of work who won’t be able to meet their financial obligations. So, if you are one of those people who are ready to make home ownership a reality and you have done all of your due diligence and have determined that now is the right time I want to give you 5 unexpected cost you might face when buying your first home. This is not to scare you but I want you to be fully prepared:
1. Closing Costs
When buying a home most people worry about the interest that they’re going to pay on the mortgage and the amount of down payment that they are putting down but what many first-time homebuyers need to remember is that after your offer is excepted there will be closing costs that need to be paid in order for you to purchase their home. Closing cost may vary but on average your pay between 2% to 5% of the home’s purchase price and these costs include any lenders fees, appraisal fees, escrow fees, title and/or attorney fees, interest, or any other miscellaneous fees that need to be paid up front. If you are not properly prepared these fees can eat up a good chunk of your savings away.
2. Home Inspections
When you are buying a home, you want to make sure that it is in the best shape possible or if there are things that need to be addressed, that you know about them upfront. This is especially true as a first-time home buyer. You cannot rely on what the seller or agent is showing you because they will do what’s in their best interest. Any homebuyer needs to take a thorough look and examination of the potential home so nothing comes as a surprise. Because of this, the second unexpected costs that first-time homebuyers may face is the home inspection. Before you officially close on your home and keys are transferred from seller to the buyer (which is you…) you want to make sure that you have someone thoroughly inspect the home to make sure that you aren’t buying someone else’s problem. This can include faulty foundations, insect problems, fire damage, termites, electrical issues, and water damage; anything that can become costly in the long run if not addressed early. The size of the property will determine the price of your home inspection.
3. Maintenance and Repair
When you are renting an apartment, your landlord is your first line of defense when things break down but as a homeowner everything is on you. This is another unexpected fee that millennial home owners have to look forward too. From the water heater, boiler, Air conditioning, etc. you have to be prepared for unexpected emergencies. Even if you are handy around the house, you still want to have some cash around if the job requires more expertise or manpower (or womanpower.)
4. Budget for Ongoing Taxes and Insurance
The biggest mistake that first-time homebuyers (and frankly most home buyers) make is that when they budget for their monthly payments they really only focus on the price of the home and what the mortgage will cost them but the reality is that your monthly payments will include taxes and insurance. In the mortgage world this is called your PITI which stands for Principal Interest Taxes and Insurance. If you take out a fixed loan, your principal and interest is going to remain the same throughout the life of your loan but your taxes and insurance can fluctuate based on many factors. This is a hidden cost that many first-time homebuyer’s aren’t prepared for and can really throw off someone’s budget and finances if not prepared correctly.
5. Prepare for Higher Utility Bills
Lastly, most first-time homebuyers either come from an environment where they were not responsible for utilities for the entire place or they probably lived in a smaller space than what they are buying. A hidden cost that many people do not consider is the utility bills. When you buy a home nine times out of ten you will be paying for gas, electric, and water which is usually not the case when you are renting. You also have to keep in mind that in some instances you will have to pay for trash pick-up which can also become costly. It is a good idea to make phone calls and find out what is the average bill for utilities, water, and trash prior to signing on the dotted line to ensure that you can truly afford your new purchase.
Owning a home can be a gift or a curse depending on how much you prepare yourself. If you do the right research, save the right amount of money, and have a good enough cushion available for the unexpected, then a home can provide you the freedom that you desire. Go in blindly and your purchase can become a burden that haunts you for years to come. The choice is yours and nothing beats preparation.
*The opinions/views expressed by Ash Cash are not considered opinions/views of BMTX, Inc., a wholly owned subsidiary of BM Technologies, Inc. BMTX is not a financial advisor and individuals are urged to obtain and consult their own financial advisors.