Beyond the Down Payment: 9 Expenses That Surprise Homebuyers
First-time homebuyers are often caught off guard by some of the costs that come with buying and owning a house. Here are some expenses you’ll want to be prepared for—beyond the down payment.
Before you buy
Home inspection: Once you’ve found your new home and your offer has been accepted, you’ll want to make sure the place is in good shape. A home inspection is not required, but it’s definitely a good idea. An inspector can sniff out hidden mechanical or structural problems that could mean costly repairs. Expect to pay anywhere from $200 to $400 or more.
Appraisal: As part of the mortgage approval process, your lender will schedule an appraisal of the home you want to buy—to make sure it’s worth the amount you’re asking them to loan you. An appraisal is required by the lender and will cost around $250–$600, depending on the size and location of the house.
Closing costs: A lot of little expenses go into closing a mortgage—such as loan origination fees, credit report fees and attorney fees. Lumped together, they’re called “closing costs,” and they usually add up to between 2 percent and 5 percent of the purchase price. You can ask the seller to cover some or all of the closing costs as part of the price negotiation; your real estate agent will be able to advise you on this.
Taxes and insurance: Your monthly mortgage payment may be more than just the principal and interest. If your down payment is less than 20 percent of the purchase price, you’ll have private mortgage insurance, or PMI, tacked on to your monthly payment. (PMI protects the lender from losing money if you end up in foreclosure.) And don’t forget property taxes and homeowners insurance, which can be paid monthly through an escrow account or in one lump sum annually.
Utilities: To understand the total cost of owning your new home, it’s a good idea to research the past year’s utility costs—for example, electric, gas, water, sewer and garbage pickup. Most sellers will have this information, or you can request it directly from the utility companies listed by the seller. It’s easy to overlook these expenses, but for homebuyers on a budget, they can be a big deal. Utility costs can vary greatly when going from renting to owning, or even when moving to a different neighborhood, city or state.
After you move in
Changing the locks: The previous owners will hand over the keys to your new home at closing, but there’s no guarantee that someone else—like a neighbor once on pet sitting duty—won’t still have one. It may never be a problem, but to be safe, you can hire a locksmith to re-key the locks or buy new ones at your local hardware store and install them yourself.
Lawn maintenance: If you’ve never had to take care of your own lawn before, you may be short on tools—a lawn mower, a rake, a trimmer and more, depending on the size of your yard. Not up for DIY? You can hire a lawn service, but that will be an ongoing expense rather than a one-time purchase.
Appliances: Stoves, dishwashers and other “fixed” appliances, like over-the-range microwaves, generally come with the house—but others don’t. Unless the sellers have agreed to leave their refrigerator or washer and dryer, you’ll likely have to buy your own. Plus, if any appliances in the house break, you’ll be responsible for repairs. Talk to your agent about asking the sellers to provide a home warranty, which will help cover any repair costs.
Cosmetic fixes: Unless the house you’re buying is brand-new or recently renovated, you’ll probably want to make some changes. Be sure to set aside money for things like paint, furniture and window treatments to help put your own stamp on your new home. (And remember, AAA Members earn AAA Dollars on purchases at stores like Lowe’s and The Home Depot.)