Buying a home is an exciting milestone, but for first-time buyers, it can also come with a lot of surprises—especially when it comes to the costs involved.
While most people focus on the down payment, there are many other expenses to budget for to ensure a smooth home-buying journey. Let’s break down the costs first-time home buyers should be prepared to face.
1. Down Payment
The down payment is often the most significant upfront cost. Depending on the type of mortgage and your financial situation, the required down payment can vary:
- Conventional Loans: Typically 5%–20%, though some lenders allow as little as 3%.
- FHA Loans: As low as 3.5% with a credit score of 580 or higher.
- VA and USDA Loans: May require no down payment for eligible buyers.
A higher down payment can reduce your monthly payments and eliminate the need for private mortgage insurance (PMI).
2. Closing Costs
Closing costs cover the administrative and legal expenses of finalizing your home purchase. These typically range from 2% to 5% of the home’s purchase price and include:
- Loan origination fees
- Title insurance
- Appraisal fees
- Home inspection fees
- Escrow or attorney fees
For example, on a $300,000 home, you might pay $6,000–$15,000 in closing costs.
3. Property Taxes
Property taxes are an ongoing cost that varies by location. In many cases, lenders require buyers to pay a portion of the annual property taxes upfront at closing. Be sure to research property tax rates in your area to avoid surprises.
4. Homeowners Insurance
Lenders require you to have homeowners insurance to protect against damage to the property. The cost depends on factors such as the location, size, and age of the home. On average, first-time buyers can expect to pay $1,000–$2,500 annually for coverage.
5. Private Mortgage Insurance (PMI)
If your down payment is less than 20% on a conventional loan, you’ll likely need PMI. This monthly cost protects the lender if you default on the loan and can range from 0.3% to 1.5% of the loan amount annually.
For a $250,000 mortgage, PMI could add $75–$300 to your monthly payment.
6. Moving Expenses
Don’t forget to budget for moving costs, which can vary depending on the distance and whether you hire professional movers.
- Local moves may cost $500–$1,500.
- Long-distance moves can range from $2,000 to $5,000 or more.
7. Utility Set-Up and Connection Fees
Before moving in, you’ll need to set up utilities such as electricity, water, gas, and internet. Many utility providers charge connection fees, which can add up to $100–$300 per service.
8. Maintenance and Repairs
Homeownership comes with the responsibility of maintaining and repairing your property. First-time buyers should set aside funds for immediate fixes (like leaky faucets or paint) and long-term expenses (such as HVAC replacement). A good rule of thumb is to save 1%–2% of the home’s value annually for maintenance.
9. HOA Fees (If Applicable)
If you buy a home in a community with a homeowners association (HOA), you’ll need to pay monthly or annual dues. These fees, which typically range from $200 to $400 per month, cover amenities and upkeep for shared spaces.
10. Emergency Fund
Finally, it’s wise to keep an emergency fund in place for unexpected costs, such as major repairs or appliance replacements. A cushion of three to six months’ worth of expenses can provide peace of mind.
Planning Ahead for Financial Success
Buying a home is about more than just the purchase price. By understanding and preparing for these costs, you can enter homeownership with confidence and avoid financial strain.
Start by creating a detailed budget, researching potential expenses, and working with a trusted real estate agent or lender. With preparation, your first home can be a joyful and rewarding investment.
Have questions about the costs of homeownership? Reach out to us at 1-855-LOANS-USA and we would be happy to help.
By: Jon Iacono