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First-Time Buyer Costs to Include in Your Budget

tl;dr

What You Need To Know

  • Homeownership comes with “cost creep.” Beyond the listed price of a house, there are upfront and ongoing costs that sneak up on you – and many require cash
  • Before looking for a house, look at a first-time home buyer’s costs checklist (hint: scroll down)
  • Knowing what costs you might need to pay for (especially the $$$ ones) can help you get into, keep – and enjoy – your first house

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Buying your first house can be like buying a new motorcycle.

Yeah, it costs a significant amount, but you’re pretty sure the payments will be just within your budget, so you get a loan.

Before you know it, you’re paying for motorcycle lessons, insurance, a carbon fiber helmet, a synthetic leather motorcycle jacket, constant repairs … and a Harley-Davidson fanny pack?

Your budget is toast. Not even buttered.

You can find yourself in a similar budget-bummer zone if you aren’t prepared for first-time home buying costs.

If a home buyer doesn’t have the savings to comfortably buy, move into and maintain a house – they may end up having to ditch the purchase and lose some money in the process. Or they buy the house but have to live with unnecessary money stress.

Here’s a quick checklist of first-time home buyer costs and fees. For a deeper dive into the must-knows of buying a house, check out our first-time home buyer’s guide.

First-Time Home Buyer Costs Checklist
Get estimates of these costs early, so you know how much house you can comfortably buy!

Before you get the keys 🙏After you get the keys 🔑 
Down paymentMoving
Due diligence feeMortgage payments
Homeowners insuranceMortgage insurance
Closing costsCondo or homeowners association fees
Home inspectionUtilities
Property taxesFurniture and appliances
Maintenance and repairs

Before You Get the Keys: The Upfront Costs of Home Buying

First-time home buyers can get so focused on house hunting and getting a home loan approved by a mortgage lender that they often get caught off guard by upfront costs.

Been there – and can’t blame them.

Here are some important things you’ll probably need money for before you ever even see the keys to the house. Make sure you’re ready to pay upfront, whether you’ve got money saved or you’ll be using “gift money” from a friend, a loved one or that one rich uncle or aunt.

Down payment

A 20% down payment on a house – or close to it – will help you land a lower interest rate on your home loan. 

Don’t feel bad or give up if you can’t come close to 20%. You. Are. Not. Alone.

According to a recent survey by the National Association of REALTORS®, most home buyers say that saving for a down payment is one of the most difficult steps of the home buying process. But there’s enough flexibility with down payments to give home buyers some options.

If a down payment of 6% or less is more in your wheelhouse, you may be able to put that much down with the right type of loan and a good credit score. A lender can help you find your best option.

Earnest money

Sometimes referred to as a “good faith deposit,” earnest money is the deposit buyers make after their offer has been accepted. The money sits in an escrow account and is basically insurance for the seller in case the deal crumbles. The amount you’ll pay in earnest money is usually a small percentage of the purchase price.

You (*cough* your real estate agent) can negotiate how much it needs to be and when it’s due.

If everything goes well and you buy the house, your earnest money will be used to pay a portion of your down payment or closing costs. But remember, it’s due much earlier in the home buying process, so make sure you have that cash in your savings.

Homeowners insurance

The most common homeowners insurance policy costs about $1,249 per year, according to a 2018 report from the National Association of Insurance Commissioners. But it can be under $1,000 or closer to $2,000, depending on what state you live in and the specifics of the house and land it’s on.

Your lender will probably require that you pay a year’s worth of homeowners insurance upfront. Yeah, that hurts our hearts, too. Depending on the specifics of your loan application, you’ll either pay for it before closing or as a part of your closing costs.

Get price quotes from different homeowners insurance providers. And if you have car insurance, see if your insurer will “bundle” your car and homeowners policies to save you money.

Closing costs

Closing costs are usually around 3% to 6% of the home’s purchase price (not including your down payment).

When you “close” on a house, you’ll sit down, sign a mountain of paperwork and pay your lender all the upfront costs you owe them to take ownership of the house.

Closing costs can include a lot of different charges and fees, from a house appraisal to mortgage application fees and mortgage points (mortgage p … what?).

Do first-time home buyers pay closing costs? Not always. You could negotiate and get the sellers to pay your closing costs (easier to pull off when it’s not a seller’s market).

There is such a thing as a “no-closing-cost loan,” but if your lender offers you that, ask them what the catch is.

All closing costs will be listed on a closing disclosure that should be sent to you a few days before closing. The Consumer Financial Protection Bureau has a good example of what a closing costs disclosure looks like on their website.

Give it a look-see before you get your actual disclosure. If you have questions about any of the language in the example, your real estate agent (or a pal who owns a home) can shed some light on it for you.

Home inspection 

How much a home inspection costs depends on the market you’re in. Typically, they’re a few hundred bucks. You could end up paying as little as $200 or as much as $600.

The cost of your home inspection may be included in your closing costs. But it’s still pretty common for buyers to have to pay for the inspection right after it’s done.

Whether you search a local app, do some googling or ask your real estate agent for a referral, find out (as early as you can) how much inspectors usually charge where you live.

And remember, cost is often tied to quality when it comes to home inspections. You want an experienced inspector who takes their time and knows what house problems to look for. That will save you from ending up in a money pit.

Lease penalties

Unless you’re living with your parents, or you’ve been camping in Yosemite since 2020, you may end up on the hook for the rest of the lease on your current abode.

If your landlord or apartment manager isn’t exactly excited about you moving, they may not agree to let you out of your lease without paying what you owe. You could end up paying rent and a mortgage payment for a while.

Factor that amount into your monthly budget after closing on your house. Make sure you have that much in savings, so you can make your monthly mortgage payments at the same time.

Fun!

Property taxes

You’ll need to pay property taxes annually for as long as you own your home, and that’s usually added to your monthly mortgage payment. No surprise there? How about this: You may even need to pay for some of the seller’s property taxes at closing. Oomph!

If you do have to pay some of the seller’s property taxes, the good news is that those taxes are already part of that estimated 3% to 6% for closing costs. So you’ll probably still be on budget – as long as you budgeted for it.

When You Get the House: The Continuous Costs of Homeownership

Stepping into your new home will feel heavenly and magical. Which is great, considering that you may not be going out much if you have zero money left after paying closing costs and a down payment.

Here are some unexpected first-time home buyer costs to know about sooner rather than later.

Mortgage payments

This is a predictable cost – but there’s more to it than just paying for the house itself.

Your monthly payment goes toward:

  • The principal balance
  • Interest on the principal balance
  • Property taxes
  • Mortgage insurance premium (MPI) or private mortgage insurance (PMI) if a part of your loan

Property taxes, MIP and PMI can make your mortgage payment higher than you expected.

Mortgage insurance is usually pretty low (2% of the home’s purchase price or less). There are online mortgage insurance calculators that can help you get a pretty good estimate of what yours will be.

There are different ways to estimate the amount you’ll pay for property taxes. A quick way to estimate is to go on a real estate site and look at last year’s property taxes for the house you’re buying. 

Once you have those numbers, plug them into an online mortgage or home affordability calculator that lets you enter property taxes and PMI. 

Condo or homeowners association fees

These extra monthly fees, sometimes paid every few months or once a year, can add up to a couple of thousand bucks per year or more. 

When you buy a condo or move into a neighborhood with a homeowners association (HOA), you’ll need to pay what’s basically a “membership fee” in return for the perks of living there. Depending on those perks, you could end up paying a lot of money on top of your monthly mortgage payments. 

Find out from your real estate agent what the fees are for the house or condo you’re interested in before you make an offer. You need to know you can afford the extra amount in your budget each month. 

Utilities

Let the mundane home purchase expenses begin! Utilities will not give you that “I just bought a house” thrill. But you should keep them in mind since they might cost you a few hundred bucks. 

Ask your real estate agent for average costs in your area. If you have a friend who lives in a similar-sized house in the area, you could ask what they’re paying. 

In addition to the utility bills, you’ll probably have to pay upfront set-up fees and deposits to open utility accounts for your house. While you’re at it, check if your utility companies offer discounts if you sign up for autopay. 

Furniture and appliances

If you’re bringing a lot of your own stuff from where you currently live, you don’t want to underestimate the cost of moving it. This can quickly become one of the biggest home purchase expenses if you’re not careful.

An interstate move can cost anywhere from $5,000 to $10,000. Even moving in town with a truck you’ve rented can cost you a few hundred.

Maybe you’ve got a lot of strong friends (with strong backs) who own trucks, but if you have to hire pros, you need to make room in your budget. Even your strong, truck-driving friends will need to be fed. It adds up.

Your first home might have older appliances and dated décor that needs to be replaced. (Why the previous owner put linoleum over carpet over hardwood, we’ll never know.)

New kitchen appliances like fridges and ovens can cost close to a thousand dollars, give or take a few hundred.

It’s easy to underestimate these home buyer costs without making a list and pricing individual items or projects.

Maintenance and repairs

Ah, fixin’ stuff. You can easily spend 1% to 2% of your home’s purchase price on repairing and replacing stuff during the first year in your new home.

Some first-time homeowners (not saying you!) might underestimate how all the little things can add up to a big home maintenance bill – especially at the start – when you may need to purchase things like tools, paint and replacement light bulbs.

The real fun comes when it’s time to do battle with nature. Got a yard? Lawn care equipment and materials can make a surprisingly huge dent in your budget – especially if you live somewhere where the weeds … Just. Won’t. Stop. Growing. 

And don’t forget about pest control. Not a fan of spiders? Wasps? Roaches? Either you’re going to buy and spray stuff yourself or you’re going to hire pros to come out every few months. This alone can run you a few hundred dollars a year.

How To Make Sure You Have the Money You Need

It may feel overwhelming, but there are plenty of helpful online and in-person resources available to you as a first-time home buyer and new homeowner.

If you don’t know where to start, ask your real estate agent.

Take advantage of these resources, plan your purchase and get familiar with the typical costs.

If you won’t be house hunting until a couple of years from now, you can start saving early with a high-yield savings account or CD. They earn a little more cash than a normal savings account. Ask your bank or credit union about these options.

By knowing your budget – and saving for it – you can enjoy your journey into homeownership.

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In Case You Missed It

Take-aways

  1. A first-time home buyer can pay a low down payment – but the higher your down payment, the lower your home loan’s overall cost
  2. Closing costs are typically 3% to 6% of a house’s purchase price – but sometimes you can find a way not to pay them
  3. It’s smart to have 1% to 2% of a house’s price saved up for repairs before you move in (even the DIY world champ couldn’t craft a new furnace from reclaimed wood)

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