Five Unexpected Costs You May Experience After Buying a New Home
If you are between the ages of 18-34, you most likely fall into one of two buckets when it comes to home buying. You are either 1) Currently in the market to buy your first home or 2) May be interested in buying your first home in the next 5-10 years. Regardless of which bucket best describes you, it’s a good idea to do your homework early in the home buying process, so that you can stay within your budget and are financially able to afford your top choice when the time comes to buy your first home.
What’s one of the best ways to stay within your home budget? Prepare for unexpected costs. Unfortunately, too many first home buyers fail to do this and do not account for “hidden costs that be especially dangerous given buyers’ tendency to overspend…with nearly 4 in 10 first-time buyers exceeding their budget, per Zillow” (CNBC).
To ensure that you’re not 1 of the 4 first time buyers who exceed their budget, take the time now to consider all of the potential expenses that may creep up during the homebuying process, like the ones included below. While these may seem overwhelming to consider, trust us, it’ll be worth it when you get the keys to your very first home.
1. Closing Costs
If you’re new to this whole home buying process, your first question may be “What are closing costs?” In short, “closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction…and are incurred by either the buyer or the seller (Zillow). Below are a few examples of the type of fees that may be considered a closing cost:
- Application Fee
- Survey Fee
- Closing Fee for Title Company or Attorney
- Home Inspection
- Homeowners Insurance
- Prepaid Interest
- FHA, VA, and USDA feeds
Now that you have a better understanding of what a closing cost is, how much should you budget to ensure you have a enough money to cover them? That amount can vary, but according to author and financial broadcaster, Dave Ramsey, “On average, closing costs can range from 2% to 5% of your home’s purchase price. For a $200,000 home, that’s anywhere between $4,000 and $10,000 to cover items” including appraisal, home and pest inspection fees, prepaid property taxes, and mortgage insurance (Dave Ramsey).
2. The Move Itself
Regardless if you’re moving from an apartment in the same city or from your parents’ house in a different state, the actual move can be expensive, and it’s a cost that can be easy to forget.
There a number of factors and cost saving strategies that you can take in order to stretch your money further. For example, if you can manage to move all of your belongings with the help of family and friends, and avoid hiring a moving company (despite how tempting and convenient it may be!), you may be able to save hundreds of dollars.
To demonstrate how pricey hiring a company can be, Home Advisor recently released their 2018 moving cost predictions and claimed that “hiring movers can cost between $442 and $1,210 with an average rate of $25 to $50 per hour. The cost of moving locally can range from $800 to $2,000 for a four bedroom house. The cost to move across country, or out of state, averages about $1,000 per room, with an average cost of 50 cents per pound (Home Advisor).
For first time home buyers, decorating a new house can exciting, inspiring, and yes, costly. From new furniture to artwork on your walls, it’s important that you decorate your new house in a way that feels like home, and there are ways to do this that won’t break the bank.
For starters, if you plan ahead and budget accordingly, you can be well-positioned to start decorating and furnishing your new home when the times comes. To help prioritize and give you inspiration, we recently compiled a list of our top “Tips on How to Decorate on a Budget”. Below are a few examples of the tips we included:
- Incorporate a theme
- Buy or create your own wallpaper
- Install new light fixtures
- Spot the sales
- Apply fresh paint
- Incorporate greenery
4. Home Maintenance & Repairs
Beyond the decor you select, it’s also recommended that you plan ahead for potential costs for the not-so-glamorous updates that you’ll inevitably encounter at your home like repairs and maintenance, which can include things like lawn care, new windows, cleaning gutters, appliances, etc.
According to the Realtor.com article, Don’t Be Shocked by These Hidden Costs of Buying a Home, these general maintenance and repair expenses “typically costs about 1% of your home’s value each year. And that’s not including large unexpected repairs, which can get pricey (Realtor.com).”
While you may have had experience paying standard utility bills (i.e. wall and electricity), you could be caught off guard on the various other utility fees that you may be faced with when you’re a first time homeowner—“which are costs not only can blindside you, but also can squeeze your budget, making living on your own that much more challenging” (Forbes). Examples of unforeseen utility expenses as a new homeowner may include (noting that if you lived in an apartment before, the apartment complex may have covered these costs or included them as part of your rent):
- Trash pickup
So how much should you budget for these various utilities? Well, according to The Balance, the national annual average for utilities is $2,964, ranging from city to city. Based on these ranges, it’s recommended that you aim to get a clear sense of what to budget for by asking a friendly neighbor or “friend with a home in the neighborhood you’re considering to give you a peek at his or her monthly bills, making sure to adjust for the size of their home versus yours” (The Balance).
For more tips and advice on buying your first home, contact our team at American Heritage Credit Union. We are happy to walk you through the process as you search for your home!