Most likely, you already have a good idea of how much house you can afford and you’ve been saving up for a down payment — 10 to 20 percent of what you plan to spend is the ideal. However, many other expenses will come up throughout your journey as a first-time homebuyer.
Before you start scheduling appointments to see your favorite listings, carefully review this checklist.
- Earnest money: When you walk into the home that’s right for you, something inside just clicks and you know you want to make an offer. When that happens, be ready to present a check for 1-3 percent of the offer to show the owner you are serious. For a $200,000 house, that means writing a check for $2,000-$6,000. Be aware that if you find something better and back out of the first offer, you risk losing that money. However, if the sale goes through, that check will be counted toward your down payment.
- Home inspection: When you find your dream house, make your offer contingent on an inspection by a certified professional. Hands down, this is the best way to learn all about the biggest investment you’ll probably ever make. A certified inspector will make a thorough assessment of the structure and its appliances, so you can move forward with the purchase knowing the condition of the foundation, roof, furnace, electric system, plumbing and more. If the inspector uncovers any problems, you can negotiate with the seller to take care of repairs and upgrades. Inspection costs vary depending on region, but range from $350-$600.
- Homeowners’ insurance: Many lenders will not only require you to take out a policy to cover the full cost of the loan, they will ask you to present a full year’s worth of premiums at closing. the cost of the average U.S. policy in 2017 is < href=”http://www.naic.org/prod_serv/HMR-ZU-16.pdf” target=”blank_”>$1,132 a year, but cost depends on the value of the home as well as its location. For example, a policy on a home off the Florida coast is likely to cost more than one on the tornado-free plains of Idaho. Before you start looking, talk to an insurance agent or two to get an idea of what you can expect to pay.
- Private mortgage insurance (PMI): Unless you have a full down payment of 20 percent, you’ll pay an additional fee each month. This goes into a policy that protects the lender in case the buyer can’t make the payments. In most cases, PMI goes away once you have paid enough on your principal to reach 20 percent equity. The amount varies, but it’s based on your credit score, the size of your down payment and the amount of your loan.
- Emergency fund: As much as you may want to replace the kitchen cabinets or get a new living room set, it’s smart to put off the cosmetic stuff for now and hang on to the cash. Even if the inspection report says the foundation, roof and siding are in excellent condition, you can count on unexpected expenses to come up. What if the washing machine breaks? What if that secondhand lawn mower breaks down? Whatever happens, you want to be ready. Long term, it’s smart for any homeowner to have enough cash to cover three to six months’ worth of expenses. That way, if you find yourself out of work, for example, paying the mortgage won’t be a problem.
- Home warranty: Once you get the keys, you’re saying goodbye to the days when a broken furnace or leaky pipe meant a simple call to your landlord. But buying a house doesn’t mean you must give up on that simplicity and peace of mind. If you invest in a home warranty, you’ll know that help from a trusted professional is just a phone call away. A home warranty can also protect your budget from unexpected home repair bills – like that washing machine breakdown!
- Utilities: If you are gaining square footage in your move, you will also be paying more on electric and natural gas costs. Also consider the monthly expenses you may be paying for the first time, such as water, sewer and garbage. To help you plan ahead, contact your local utility and find out what the average homeowner pays each month.
There’s no doubt about it, buying a home is a huge responsibility. While this process may seem overwhelming, taking the time to familiarize yourself with the steps and costs will ensure you have a smooth transition into having a home of your own.
HWA and its affiliates are not in the business of buying, selling, or offering any type of legal information or advice regarding the purchase or sale of real estate. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or financial purposes. You should consult with a real estate professional before engaging in any transaction.