Buying a house has more associated costs than most first-time buyers realize. The assumption is that if you can afford the down payment, monthly mortgage, property taxes, utilities, and other household expenses, then they’re good to go. However, most overlook the initial costs of making an investment of this size. It’s often not until they find a home they love and prepare to finalize the deal that they learn more about upfront costs, reducing their position to buy the property.
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Understanding Upfront Costs
Can you afford the initial costs of purchasing a home? Here’s a look at some of the expenses you’ll be responsible for:
- Loan Origination Fees – these are fees assessed by the mortgage company to process the loan application. While loan origination fees vary by lender, borrowers can expect to pay anywhere from 0.5% and 1% of the mortgage.
- Costs For Services – There are other services required to finalize the loan. You’ll have to pay for an appraisal, pest inspection, property inspection, surveys, and title searches. While you can save money by hiring professionals on your own, these services can cost several hundred or thousand dollars each.
- Transfer Taxes And Recording Fees – There is a fee for transferring the property deed from one owner to another. You’ll also have to pay the government to record the purchase in the public land records.
- Prepaid Taxes and Insurance – Most home buyers budget for monthly insurance and quarterly (or annual) property taxes. However, what they fail to realize is that initially, they’ll have to make advanced payments. Typically, you’ll have to pay a year of insurance and six months of property taxes.
- Reserves – Reserves is the amount of money you have in a savings account after covering the costs of purchasing a home. The idea is that borrowers show proof that they’re not exhausting their life’s savings to buy a house. The amount you need in reserve will depend on the mortgage company.
- Private Mortgage Insurance – First-time homebuyers who put down less than 20% on the property purchase will be required to pay for private mortgage insurance.
- Attorneys and Realtors – While neither of these experts is required to buy a house, they are highly recommended. Homebuyers will be responsible for footing the bill for a real estate attorney. Depending on their contract, they may also have to cover the realtor’s commission.
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Saving The Additional Money
As you can see, buying a home isn’t just as simple as saving up for the down payment. If you’re worried you don’t have the funds necessary to get that dream home for your family, there’s still hope. Below are some suggestions on how to get closer to your savings goal.
- Sell Big-Ticket Items – Rather than nickel and dime your way to your dream home, get there faster by selling big-ticket items. For instance, if you have multiple vehicles, you could sell one for a decent amount. A simple search on “how much is my car worth?” will tell you how much you could receive. Other popular options include electronics, furniture, and appliances.
- Downsize – If you really want to boost your savings for a new house, you might consider downsizing. Homebuyers that plan to relocate in the next six months to a year can save money by either moving into an apartment or a relative’s home. Downsizing would enable them to save money they would have paid for monthly expenses.
- Free Entertainment – Sometimes sacrifice is necessary to acquire the things you want in life. For the next few months, eliminate any expenses for entertainment and opt for free alternatives. For instance, cut your cable subscription and switch to free online streaming services. Instead of going to the mall, movies, or a local restaurant, cook at home and attend community events.
As you’re making a decision to buy a home, it’s essential to consider your financial obligations. While most people remember costs like the down payment, a mortgage note, insurance, utilities, and monthly household expenses, they often overlook the upfront costs. Before you can seal the deal and receive the keys to your new house, use suggestions like those above to increase your savings to cover all associated costs.