8 Hidden Costs When Buying a Home:

Interest Rate

Mortgage lenders will calculate the interest rate based on your credit score, income, down payment, and history. If you have a credit score of under 620, you cannot afford a down payment of at least 10%. If you have just transferred into a new job or career , you should wait until your credit score has increased. You can do this by paying off any outstanding credit card debt, save up for a higher down payment, and wait until you have been employed for a longer period of time. These ideas will help you secure a lower interest rate on your mortgage, which will lead to a lower monthly payment.

Earnest Money

One of the first steps after finding your dream home is submitting an earnest money deposit to the seller. This deposit is your way of telling the seller you are seriously interested about buying the home. Meaning you aren’t going to get the seller’s hopes up just to buy a different house. The earnest money is put in an escrow account, which is most likely handled by the buyer’s real estate agent, title company, or even an escrow company. The seller will not be able to access any of the funds. Once you close on the home, the earnest money will just go towards purchasing the property. Although, if you can’t obtain a mortgage or decide you actually don’t want the house, you’ll most likely lose the deposit, depending on the wording of the contract. The earnest money amount varies but typically ranges between one and five percent of the purchase price.

Escrow

When buying your home, you’ll most likely need to pay twelve months in homeowner’s insurance payments. You’ll also need to pay anywhere between six to twelve months of taxes upfront and will be placed into an escrow account, which again can’t be touched by the seller. Escrow means that your funds are held in an account you cannot touch. The bank will then withdraw the funds from the escrow account to pay the property tax and homeowner’s insurance. Lenders will typically require that some additional funds remain in the account if insurance or taxes are higher than anticipated. If you sell your home and extra funds are in the escrow account, they will be paid back to you.

Closing Costs

Closing costs are fees that you must pay before the house is officially yours. These fees can cost up to 5% of the price of the home. These fees could include: loan application fees, appraisal fees, inspection fees, transfer taxes, escrow fees, attorney fees, recording fees, title insurance, and title costs. These fees, as well as the down payment, are typically paid at closing. Some of these fees are relatively small, such as a recording fee of about $25. If you cannot afford the closing costs, it could be possible to transfer them into your loan payment. While this will bring your mortgage payment up, it will mean paying less money at closing.

Homeowner’s Insurance

Homeowner’s insurance will provide coverage on your home if it is affected by a fire, theft, natural catastrophe, etc. Most mortgage companies will require homeowner’s insurance since they want to ensure their investment in your home is protected in the event of an accident or disaster. There are different types of homeowner’s insurance available; some insurance companies may pay to repair or replace the belongings in your home that have been destroyed. There are also forms of homeowner’s insurance that will include coverage if a visitor is injured while visiting your home. Homeowner’s insurance is usually contingent on the area where you live. For example, those who live in Florida will pay more than us in Texas because the location is more susceptible to natural disaster.

Moving Costs

With so many people moving to Austin, TX, daily we have become all too familiar with the cost of making a move. Although moving is a one-time cost (as opposed to the other recurring fees above), it’s still an inevitable one that can add up very quickly depending on your moving needs and how far you are relocating. Moving locally in Texas can typically range between $1,000 to $2,000, but moving cross-country can cost up to $10,000 or more.

Utility Costs

After you’ve closed on a home and started paying your mortgage, you’re not done with payments! There are utility costs you must pay for. These costs include electricity, water, gas, cable/internet, and trash/recycling. If you don’t have your own driveway you might need to pay for parking as well. By confirming the utility costs before buying the home, you won’t be surprised when your monthly bills come in the mail. In addition to paying these monthly bills, some utility companies may also require an initial fee to set up the service.

Home Maintenance & Repairs

Other payments you’ll need to budget for after you close on your home are repairs or any maintenance/renovation you want to take care of. Home maintenance and repair costs will obviously vary depending on the home’s age. Regardless of the house’s year, maintenance and repair costs always apply to any home since wear and tear are normal and expected. Budgeting anywhere between one to four percent of your home’s value on maintenance and repair costs each year is a good estimate. If you are preparing to put significant work into your home, remember that all maintenance and repair projects that go into the house will ultimately increase its resale value down the road. In addition to the costs written above, you should also include purchases such as buying new furniture or home décor, which evidently are everyday purchases for new homeowners.

If you have any questions or you’d like to learn more about the home buying process and what to expect reach out to us at [email protected].