Buying your first home is an exciting milestone, but it comes with a lot of costs that you may not think about right away. Understanding the financial responsibilities of owning a home is important so you can plan ahead and avoid surprises. This article breaks down the main costs of first-time homeownership to help you budget and smoothly transition into your new home.
Down Payment
The down payment is one of the biggest costs when buying a home. It’s the amount you pay upfront, usually a percentage of the home’s price.
- Typical Down Payment: For conventional loans, the down payment is usually 20%. However, many first-time buyers pay less, especially if they qualify for government-backed loans (FHA, VA, or USDA) that allow as little as 3-5%.
- Impact: The size of your down payment affects your loan amount, monthly payments, and whether you need to pay Private Mortgage Insurance (PMI). A larger down payment means lower monthly payments.
Closing Costs
Closing costs are the fees and expenses paid when finalizing the purchase of your home. These costs usually range from 2-5% of the home’s price.
- Typical Costs Include:
- Loan origination fees (charged by the lender)
- Appraisal fee (to check the home’s value)
- Title insurance (protects you and the lender)
- Home inspection (checks the condition of the home)
- Escrow fees (fees for handling the closing process)
- Recording fees (for registering the home with the local government)
- Tip: Your lender will provide a Loan Estimate form, which shows the closing costs. Review it carefully and ask about anything you don’t understand.
Home Inspection and Appraisal Fees
Most lenders require a home inspection and appraisal to make sure the property is in good condition and worth the asking price.
- Home Inspection: This usually costs between $300 and $500, depending on the size and location of the home.
- Appraisal: Lenders require an appraisal to confirm the home’s value. It typically costs between $300 and $600.
Mortgage Insurance
If your down payment is less than 20%, you may need to pay for Private Mortgage Insurance (PMI), which protects the lender in case you don’t pay your loan.
- Cost: Property taxes usually range from 1% to 2% of your home’s value per year.
- How It Works: Your lender may set up an escrow account where part of your monthly mortgage payment goes toward property taxes. You’ll pay the taxes when they’re due.
Homeowners Insurance
Homeowners insurance is required if you have a mortgage, and it helps protect your home from damage or loss due to fire, theft, or disasters.
- Cost: Homeowners insurance typically costs between $1,000 and $2,000 per year, depending on factors like location and the size and value of your home.
- Tip: Shop around for the best rates, and consider bundling your home insurance with other policies (like auto insurance) to save money.
Utilities and Maintenance Costs
As a homeowner, you’re responsible for paying utilities and maintaining your home.
- Utilities: Utilities like water, electricity, gas, and trash collection typically cost between $200 and $400 per month, depending on your home and location.
- Maintenance: Regular upkeep is important to keep your home in good shape. On average, homeowners should set aside 1% of their home’s value per year for maintenance. If your home is worth $250,000, you should budget about $2,500 annually for repairs and upkeep.
Homeowners Association (HOA) Fees
If you live in a community with a homeowners association (HOA), you’ll likely pay monthly or annual fees. These fees are used to maintain shared spaces like parks, pools, and clubhouses.
- Cost: HOA fees typically range from $100 to $500 per month, depending on the services and amenities provided.
Furnishing and Decorating Your Home
When you move into a new home, you may need to buy furniture, appliances, or decorations to make it feel like your own.
- Cost: Furnishing a home can cost anywhere from a few hundred to several thousand dollars, depending on the size of your home and your personal style. You might need to buy new items like a refrigerator, washer/dryer, or living room furniture.
Landscaping and Yard Care
If your home has a yard, you’ll need to maintain it. Landscaping costs can include planting, lawn care, and seasonal upkeep.
- Cost: Landscaping services usually cost between $50 and $200 per month, or you can do it yourself to save money, though that requires time and effort.
First-time homeownership involves a lot more costs than just the mortgage. From the down payment and closing costs to ongoing expenses like property taxes, insurance, and maintenance, it’s important to budget for all these expenses. Understanding these costs and planning ahead will help you avoid financial stress and enjoy your new home. By managing your money wisely and setting aside funds for both expected and unexpected expenses, you can make owning a home a rewarding experience.
If you have any questions or would like to speak with one of our mortgage experts, feel free to set up an appointment.
