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What 7 Common Costs Do First-time Homebuyers Forget?

Buying your first home will be one of the most exciting yet nerve-wracking experiences in your life. But it doesn't have to be stressful.  First-time homebuyers often look at the sale price of a house and think that is what it will cost to purchase the home.  However, homeownership comes with other costs that should not be disregarded.  Smart financial planning, and keeping the additional costs of home buying in mind can be the key to that satisfying feeling you get when you turn that key for the first time. Here is a review of seven often overlooked costs for first-time homebuyers.
  1. Home Insurance.  Homeowners insurance is mandatory with many loans available for first-time homeowners, so get in touch with your insurance agent as soon as you have found a house you like. You will get a pretty accurate quote of monthly costs, and what's included. Your insurance will cover repairs if your home is damaged in a fire, environmental disaster such as a tornado, or if your pipes burst.  In addition to covering these unexpected damages, homeowners insurance provides liability coverage if someone is injured on your property and requires medical attention. Keep in mind that certain items, like a pool or a trampoline, will increase the cost of your insurance. Also, if the home you are purchasing is in a flood zone, you will be required to purchase additional flood insurance. Insurance is usually paid annually or twice a year, and you will need to continue paying to keep the insurance policy up-to-date. It is worthwhile to check into the cost of home insurance before you purchase a home to make sure you will be able to afford that expense in addition to the mortgage payment. can vary. 
  2. Closing Costs.  The closing costs are the amount of money you must pay the lender to create the mortgage for you. The amount of the closing costs varies depending on where you live and the cost of the home you are purchasing. The closing costs include the fee for running your credit report, lawyer fees, inspection charges, appraisal fee, survey fee, title search fees, underwriting fee, paperwork processing fees, and more.  Lenders are required to give you a good faith estimate (GFE) within three days of submitting your mortgage application, which should provide you an estimate of what your closing costs will be. Between the realtor fee, the closing fee, the prepaid taxes, and the insurance for the first year, your closing costs could be significant. Try to negotiate with the sellers to have them pay at least part of these costs, or keep your down payment small enough to have some wiggle room. Either way, anticipate that more than just your signature will be required at closing. Your mortgage adviser should be able to give you a pretty accurate estimate or what you'll need.
  3. Mortgage Insurance.  Mortgage insurance is also called private mortgage insurance (or PMI), and is required if you put a down payment on a home that is less than 20% of the total cost. The cost of PMI varies based on how much down payment you make and the cost of the loan, but it is typically between 0.5% and 1% of the loan. The mortgage insurance protects the lender in case you don't make the mortgage payments and end up in default. Mortgage insurance ensures that the lender will still be paid by the insurance company even if the house ends up in foreclosure. Mortgage insurance basically increases the cost of the monthly mortgage bill. 
  4. The Down Payment.  The down payment is the amount of money you will pay up front for the house. It is typically reported as a percentage of the total home cost.  20% is an ideal amount since that means you won't have to buy mortgage insurance. A mortgage loan calculator can help you figure out your payments. 
  5. Property Taxes.  A homeowners tax bill covers the funds for the public schools and the other tax bill pays the state, county, and town fees for services. In some cases, the tax bill will be included in your monthly mortgage payments as opposed to arriving as an additional end-of-the-year bill.  In either case, taxes will increase your expenses. They vary widely depending on where you live, so it is worth checking into the tax rate of any home you are considering purchasing. Your real estate agent should have this information for you.
  6. Utility Bills.  If you are moving from an apartment to a home, you may find that you have new utility bills.  In many apartments, some portions of the total utility bill, such as water or cable, are included in the cost of rent. When you own a home, nothing is included with the mortgage. You will pay for the gas, electricity, water service, phone service, and cable service separately.  Keep in mind when you move from an apartment to a house, you will pay more to heat and cool your home.  In addition, depending on the town you live in, you may need to pay an additional bill for garbage collection or other services.  
  7. Repairs.  Unless you buy a brand new home, chances are you'll want to make at least some changes. Whether that includes a new floor or just a new coat of paint, begin calculating these costs when walking through a property. Having an exact budget for your post-purchase renovation will help guide you on the right products to buy. Also keep in mind that when you lived in an apartment and something broke, you likely called the owner of the apartment and they paid for the fix and completed the repair for you.  When you own your own home, you are responsible for all repairs. If an appliance fails, you will have to purchase a new one. If the roof is leaking, you get to replace or repair it. If you are not handy, you will want to hire someone to do the work. It is wise to have money set aside for repairs, as they always pop up when least expected. We recommend calculating a small security into your monthly budget that you deposit into a savings account, ensuring that when these issues come up you will have the money to deal with them.  
One final tip about calculating your overall and monthly budget when buying your first home: guess high. It's much better to pay less than what you thought and gain some unexpected money than the other way around. Keeping in mind the above seven often overlooked costs of home buying and home ownership will help you budget appropriately so that you can be successful paying your mortgage and maintaining your home. Contact us for additional information about home purchasing.

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