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5 Expenses Most New Homebuyers Don’t Think About

May 29, 2015

in Home Buying Guide | Tagged , , , , , ,

Expenses Most New Homebuyers Don’t Think About

Hop in the car, find homes for sale, fall in love with one, put in an offer and off you go into the land of homeownership – right?

Not exactly, although this is how the process works according to many first-time buyers. That is, until they become educated. From miscellaneous expenses of the purchase process to monthly mortgage payments and beyond, buying a home can just about nickel and dime a person into the poor house – if you’re not prepared.

Let’s take a look at a few key expenses that many first-time homebuyers either don’t know about or don’t consider when they find a home they assume is in their price range.


A mortgage payment doesn’t just pay the lender back for what you borrowed. Most real estate professionals refer to your monthly mortgage payment as PITI (pronounced “pee-tee”). It includes the principle (the payment on the house), interest, taxes and insurance.

So next time you write a check to the mortgage company, remember, you’re paying for more than just the principle.

2. Private Mortgage Insurance

A necessary evil when you purchase a home with less than a 20 percent down payment, private mortgage insurance, known as PMI, only benefits the lender. It insures the lender against a default by the borrower.

In other words, you will pay the monthly premium and if you quit making your mortgage payments, the lender will derive the benefits. Avoid PMI by paying at least 20 percent of the total loan as a down payment.

3. HOA-Related Expenses

Many condo buyers focus solely on monthly HOA fees when deciding whether or not to purchase in a managed community. There are many other fees that come with this type of purchase, so it is vital you read every page of the HOA document package your agent will order.

For example, if a major repair needs to be made – such as to the roof – and there is not enough money in the HOA’s reserve account, the homeowners in the community will be assessed a fee to help cover the cost. These fees can run into the thousands.

Check the HOA’s financials and assessment history carefully. If you don’t understand the paperwork, take it to your lawyer or accountant for an explanation.

4. Home Inspection

While a professional home inspection is worth every penny, it’s something a smitten potential buyer may not consider. The average cost for a home inspection in the U.S. is in the low- to mid-$200 range. It can be even more costly, depending on where you live and if you decide to hire additional specialists to inspect specific areas of the home. To be safe, factor at least $300 into your homebuying budget.

5. Home Maintenance

Performing routine home maintenance is the best way to preserve your home’s value. It’s also the most costly part of owning a home, however, and sadly many homeowners don’t set aside reserves, even for emergency repairs.

While how much you should set aside per year varies depending on the age of the home, the condition of the home at purchase and other factors, experts say that you should reserve at least one percent of the property’s value every year. So if the appraised value of the home is $200,000, you should set aside $2,000 every year for home maintenance.

There are often additional expenses in purchasing a home, and while many of them, such as the appraisal, are included in your closing costs, the aforementioned are commonly overlooked by first-time buyers. Knowledge is power – especially when making what might be the biggest investment decision in your lifetime.

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