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First Home: The Additional Costs You May Be Unaware Of
Overlooked additional costs can shock many first-time homebuyers. If you’re in the market for your first home, consider some of the following when you think about the true cost of purchasing a home.
You might think the only number you should focus on before buying a first home is your down payment. That is not the case. Another significant factor in buying a house is closing costs. In simple terms, closing costs are the fees associated with finalizing your transaction.
Closing costs can include such things as:
- A fee to appraise your home
- A fee to process the documents associated with your mortgage
- A fee to pull your credit report
- A fee to report your purchase to the appropriate government entities
Separate from the closing costs, you must also account for commissions paid to your real estate agent. Many realtors are paid between 6-8% of the sale price of a home. This won’t necessarily impact you as a buyer, but it will come out of the proceeds of a sale if you’re on that end of the transaction.
Both of the above represent a significant addition to the true cost of purchasing a home – before you even step foot in your first home. That’s also not to mention the cost of actually moving into your new home.
After Moving In
It’s easy to think that the mortgage payment is the only cost you need to be concerned with after moving into your first home. There are many additional costs to consider that accompany home ownership. These costs can add hundreds to your total financial obligation each month and potentially thousands every year. Some of those costs are:
Private Mortgage Insurance (PMI) – If you did not put down 20 percent on the purchase, you will be responsible for paying PMI. According to Freddie Mac, this can add at least an additional 0.5% to your loan amount every year.
Home repairs – You never know what will need attention. That will add more cost. On average, homeowners will spend between 1-4% of their home value annually on maintenance on repairs, which tend to increase as the house ages.
Insurance and taxes – This will vary depending on where you live and adds to your annual cost.
Homeowners Association (HOA) Fees – If you chose a house in an HOA, they often require annual payments. Those payments funds things like maintenance in your neighborhood or annual community events. These fees vary substantially from neighborhood to neighborhood.
You will run into other regular costs, such as utilities or other services you have on a monthly basis. All of those costs must be considered when looking at the true cost of purchasing a first home.
How to Minimize the True Cost of Buying a Home
It’s easy to get overwhelmed when considering the real cost of buying a house. That being said, it is possible to minimize many, though not all, of these costs. When looking at a potential purchase, it’s important to remember the more you save, the more money you’ll be able to put down on the house purchase. This provides greater flexibility and control over your purchasing decision.
Contact our home mortgage brokers in San Ramon for home mortgage loan and mortgage refinancing.