5 Unexpected Costs When Buying Your First Home

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My husband and I have bought two houses in the last three years. We learned a lot when buying our first home. You not only need to be prepared for paying your down payment, but you need to be prepared for ALL the expenses that come with it. 

The first thing we did was calculate our average mortgage payments to make sure we could afford that. There are plenty of sites out there, but we used the calculator on Bankrate.

For each of the houses, we found extra costs/expenses that weren’t expecting. Buying a house is expensive as it is. If you know about these extra costs and can work them into your budget, it can make the home buying process a lot easier on your budget. 

Expenses When Buying Your First Home

Closing Costs

When you first buy a house you need to be prepared to pay the down payment and closing costs. We bought two very budget-friendly houses. They were both fixer-uppers. We ended up paying $3500 in closing costs for both our houses. This was on top of the down payment. 

Closing costs tend to be about 2-5% of the purchase price, so make sure you budget for closing costs and make sure you can afford that cost upfront when you are ready to make the purchase. 

Closing costs also vary from lender to lender. When we bought our first house, my husband and I used two different banks and talked to both of them about quotes on the loan (interest rates and closing costs). Using my bank saved us $800 on closing costs and got us a better interest rate, so check with at least two different lenders about costs and find the best deal. 

Property Taxes

When planning for your monthly payments, make sure you also include property taxes. You don’t want to get smacked with a bill for a few thousand dollars at the end of the year because you didn’t plan ahead. 

Before purchasing a house, find out what the approximate property tax bill is, divide by 12 to get each monthly payment for the year and add that to your estimated mortgage payment. Make sure you can comfortably afford the entire payment before pulling the trigger on buying a home.

We set this up with our bank. They created an escrow account for us and change our payments by how much taxes cost us that year. So we pay an additional amount on top of our mortgage payment and the bank holds the money for us until taxes are due. It helps us with budgeting and its a lot easier to pay a little extra each month than have a large payment at the end of the year. 

Insurance (Home and PMI)

Homeowners insurance costs a lot more than renters insurance. You’ll have to get an estimate from your insurance company to get an accurate quote, but it’s something to consider. 

Personal Mortgage insurance can also be a factor. You can buy a house for a fairly small down payment. Sometimes even as low as 2% of the home cost, but that comes with a downside. 

If you don’t have a large enough down payment, you may have to pay personal mortgage insurance each month. 

On our first house, it cost us an extra $60 per month for PMI insurance. We had to pay that until 20% of the home value was paid off. That can add up fast, so it’s something to keep in mind. The amount will vary from lender to lender as well.

Home Inspection

When buying a house, the home will need a thorough inspection. You will pay an inspector to come and walk through the home. they will alert you of any issues or things that may not be up to code. This costs a few hundred dollars, just for the inspection. 

The inspector will likely find issues that need to be fixed. Those problems will be other expenses that need to be considered when purchasing a home. If electrical needs to be fixed, that shouldn’t be ignored or put off. Repair costs can add up extremely fast.  

We were so happy with our inspector though. He found some electrical issues and a few other problems. We negotiated with the old owners before buying the house and they ended up fixing a lot of those issues for us before we bought the house.

Home Appraisal

A lot of lenders require you to get an appraisal before purchasing a home. Even if they don’t its probably a good idea to do so because you’ll find out the value of the home. Then you have a better idea when negotiating. 

An appraisal can cost a few hundred dollars as well. 

Overall

So after these five unexpected costs when buying a home, you could be talking another $10,000 or more. That’s on top of your down payment. It all varies based on the cost of the home you want to buy and the area that you live.

A small house will have lower closing costs than a larger house and property taxes can vary tremendously based on area. We moved from one city to another and our taxes went up over $1000 a year. 

After purchasing your first home, there are also a lot of expenses that come with home ownership. I have another post discussing the costs that come AFTER purchasing your first home.

Hopefully, you can be more prepared for the home buying process and won’t be as surprised when these costs come up. 

What surprised you when you first bought a home?