Buying your first home is an exciting milestone. However, it can also be a stressful time, especially if you are not prepared for the financial burden of owning a home.
The costs of buying and renting are very different, and you need to be prepared for the change.
Choosing a budget when buying a house isn’t quite as simple as deciding on a down payment. There are additional costs associated with buying the house, as well as all the factors to consider once you’ve moved in.
If you haven’t budgeted correctly, you might be surprised by how quickly these costs add up.
If you’re buying your first house, there are expenses to consider for both before and after the purchase. Take a look at this guide to find what factors to include when making your budget, and buying your home.
Expenses To Remember When Buying A Home
The Down Payment
The down payment is likely to be the largest expense and the biggest part of your budget. The down payment is a percentage of the total cost of the mortgage that will be paid when you close on the loan.
A down payment is typically calculated as 20% of the purchase price. So, if the home is $250,000, the down payment would be $25,000.
However, down payment isn’t always 20%. In fact, it can be as little as 3%. But when budgeting for your first home, it’s best to assume a 20% down payment.
Closing Costs
Closing costs are complex fees that are given to the lender to complete the transaction when purchasing the house.
The closing costs are paid on top of the down payment, and typically cost between 3 and 6 percent of the total loan amount.
The closing costs account for various expenses incurred during the buying process. Title insurance, surveys, and appraisals are generally covered by these closing costs.
Buyers will be provided with an itemized list of the closing costs.
In some cases, the seller may need to cover some of the closing costs. For example, surveys will typically be the financial responsibility of the seller.
Property Taxes
You’ve handed over the down payment, settled the closing costs, and you’re ready to move into your house. Now you have a few extra costs to consider that you might not have remembered in your budgeting.
Property taxes aren’t a concern when you’re renting, but they are an extra cost when you buy your own home. Property taxes are calculated based on the cost of the property, and the tax rates in the area you live.
These taxes will then pay for facilities in the local area.
Some mortgage companies will factor the property tax into your monthly mortgage payment. This means you don’t have to pay all in one go, and can stretch the cost throughout the year.
When budgeting for your home, you must consider the property tax.
Another factor to consider in your budget are potential homeowners association fees or HOA. An HOA fee is charged to homeowners who join the community. It covers things like maintenance, utilities, and other services.
HOA fees vary from community to community.
Insurance
Buildings insurance will be required by your mortgage lender, so make sure to include this when considering your budget.
Buildings insurance is a must, as it protects against serious damage to your property. This should be covered in your loan payments.
You may also want to consider contents insurance. Content insurance isn’t a requirement of the lender, but it does protect you against loss or theft of personal items such as jewelry, electronics, furniture, and appliances.
Buildings and contents insurance are sometimes banded together and known as home insurance. Or, you can pay for them separately.
Maintenance Costs
When something goes wrong in a rental place, your landlord takes responsibility for repairs and costs. When you buy a home, however, you’ll be responsible for any repairs, and all the associated payments.
Repairs and maintenance are costs that we all hope to avoid, but that manage to occur anyway. As a homeowner, you will end up paying for maintenance throughout the year.
We recommend starting an emergency fund before buying and factoring monthly emergency savings into your budget.
In a rental place, it’s easy to leave damage unattended. Not your house, not your problem. But when you own a property, neglecting repairs only causes more issues down the line.
Budget for it now, and save yourself the future costs.
Furniture, Appliances, And Moving Costs
If you’re moving out of a rental place and into your new home, there are a lot of costs involved. From packing boxes, to hiring movers, to shipping your belongings, there are many factors to take into consideration.
But to move your belongings, you have to have the belongings.
Furniture can be costly, and you’re likely to need a lot of it to fill your new home. Include furniture in your budget, or you might find yourself sitting on garden chairs for longer than you like.
A new home is likely to need appliances as well. Some homes may come with appliances, or you might be able to purchase them from the seller moving out. These are essentials and must be a consideration of your budget.
Don’t forget all the little things you need to fill a house. Light fittings, blinds, coffee makers, etc. will all need to be purchased.
Utilities
Utilities are another expense that comes along with owning a home. Electricity, water, gas, cable TV, internet, phone – these are just some of the monthly bills you’ll pay.
In a rental place, you may have paid for utilities with your monthly rent, or taken control of certain individual bills.
Once you’ve bought a property, all those payments become your own responsibility. Budget for them alongside your monthly mortgage payments.
Final Thoughts
Initial expenses and future monthly payments both need to be considered when budgeting to buy a home for the first time.
If you choose to buy a home, you can expect a few unexpected costs to turn up. But with careful budgeting, you won’t be caught short by these new expenses.
Financial Disclaimer
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