If you are a first-time home buyer, you might be working hard to save up money for a down payment. The thing is, there are a few other major costs that you should incorporate into your savings plan as well. Here are four hidden costs that can add up quickly when it comes to buying a home.
1. Closing Costs
Closing costs can vary widely from state to state and how your lending officer sets up incorporating fees and costs into this. While you will need to have a home appraised and inspected, additional inspections for mold, termites, or foundation damages might be specifically needed for your property. These additional needs might come out in your share of the closing costs depending on how this is negotiated with the seller.
2. Escrow Account Set-Up
If you will be setting up a mortgage, there are a few other things that might go into an escrow account than just your standard home loan. Many times escrow accounts will roll in property taxes and additional mortgage insurance. These will be estimated for the year, and an upfront account will be set up with funding in order to to get the account ready for funds coming in and out every month.
3. Immediate Renovations
Depending on how move-in ready your home will be, it might actually make sense to do some initial renovations before moving in for good. This might be simple upgrades such as new paint, flooring, or kitchen renovations, but these still need to be budgeted for. If you are looking at fixer-uppers, don't forget that some funding upfront might help. This will enable you to take care of a few quick fixes that are easier to do right away with an empty house.
4. Year's Worth of Homeowner's Insurance
Many times mortgage lenders will require that an entire year's worth of homeowner's insurance be paid up front in order to protect their investment in a property. This should be looked at as a good faith effort that your property will be covered for any damages that might occur right away. After a full year, this usually can be paid monthly instead and isn't a requirement of mortgage lenders.
Your real estate agent and home lender should walk you through the costs that might need to be absorbed when closing on a home and moving into your new property. Many times first-time buyers can get so focused on down payments that they forget about other additional costs that will need financing as well. If you are aware of all the costs related to buying a home before you start searching, you can save for these needs as well.