Buying a home is 38% cheaper than renting in most cities, so it’s no surprise that more and more renters are considering buying a home. If you’re among this new crop of prospective homeowners, as you crunch the numbers for your down payment and mortgage, be aware that there are a few other costs that catch you by surprise. While shopping for your first home, a few of these costs:
Home Inspection and Appraisal
Although not always required, home inspections are highly recommended. They can save you time, money, and a lot of headaches in the long run. Home inspections can cost between $375 and $550, but “be aware that price can easily push to $500 or $600+ if you have a large home or need additional inspections, such as radon or termite, which aren't typically included in a general inspection,” says Doug Bonderud of Angie’s List. A home inspection is not the same as an appraisal, which you may also need. Banks require a property appraisal to determine its market value. On average, you can expect to pay between $300 and $400 for an appraisal as well.
You survived the home inspection and appraisal, your offer was accepted, and your down payment is ready. But you’re not done with purchasing expenses yet! You’ll also have a list of closing costs to cover. These costs can include lender fees, attorney fees, escrow fees, and interest that’s prorated from the date of your closing to the first of the following month. While some closing costs are negotiable, plan for costs as high as 3% to 6% of the home’s selling price. Maybe hold off on planning for your next vacation until this cost is paid.
Homeowners insurance is one of the most important things you can purchase to protect your home. Nationwide, the average annual home insurance premium is $1,034. A standard home insurance policy usually doesn’t include flood or earthquake coverage, which you may need depending on where you live. This average varies depending on the insurance company, property, state, and a number of other factors. “Home insurance costs vary widely across the country, so it’s important to compare rates and know how much you need to set aside,” says Micah Pratt, Insurance Specialist with Safeco. Home insurance can be lumped into a mortgage, saving on up-front costs, so make sure to discuss it with your loan officer.
Whether you’re moving down the street or across the country, moving can cost more than you’d imagine. You’ll need packaging supplies and moving supplies, and you may need movers, rental trucks, storage units, and temporary housing. Adding up these expenses, it costs on average $1,170 to move intrastate and $5,630 to move between states. As busy as you are buying a home, think ahead to moving day and the associated fees. If you’re hiring a moving company, make sure to shop around for a variety of quotes; if you’re moving on your own, prepare ahead by collecting moving boxes, packing in advance, and locking down helpers for moving day.
Once you’ve moved into your home, don’t forget to account for ongoing expenses. For most homeowners, property taxes are among the highest costs associated with owning a home – and something rarely considered before purchasing one. Property taxes vary by state and are a percentage of your home’s appraised value, which means your property taxes increase as the value of your home increases. Hawaii has the lowest rate—0.28%—and New Jersey ranks the highest at 2.38%. Depending on the terms of your loan, you either pay your property taxes directly to the government or pay monthly into an escrow account, from which your lender will make property tax payments. Buying your first home, moving, and adjusting to life as a homeowner is overwhelming, exciting, and stressful all at once. Understanding the additional costs that go into the home buying process can alleviate some of the stress and help you avoid blowing your budget.