Purchasing a home is the American Dream for many people. However, it doesn’t come cheap. There are some unexpected costs you should be aware of when buying a home.
The first cost you have to consider is the down payment. However, the down payment is more of an investment than an expense, which has to do with the loan type. The most prevalent loan type out there is an FHA loan because the down payment is usually only around 3.5%.
There are also VA and USDA loans, which require no money down. However, you need certain memberships or to meet certain income requirements to qualify for those. For a USDA loan, the property you want to purchase has to qualify as well.
Outside of those loans, conventional financing is also an option. Conventional financing usually requires 20% for a down payment, but you avoid private mortgage insurance with that option, potentially saving you hundreds of dollars a month. However, there are programs that can assist you with conventional loans, reducing the down payment to 5% or even 3%.
You also have to take closing costs into account when purchasing a home. Closing costs vary by state and area, but in Maryland, closing costs are usually 3% to 4% of the purchase price. Lender fees, title fees, transfer taxes, and other miscellaneous fees are covered with closing costs.
Unlike the down payment, if you negotiate well, closing costs can be covered by the seller. There is a good chance you might get some if not all your closing costs taken care of.
You also need to budget for any inspection costs. These costs will depend on the size of the house, whether the house needs a septic inspection or pest inspection, and other factors, so be sure you set aside a good amount to get those inspections done.
Although it’s a common one, don’t forget about the cost of moving. Obviously, moving to a different state will cost more than moving across town, but it’s still wise to budget exactly what those costs will be.
Always expect the unexpected when purchasing a house. A good strategy is to have an emergency fund. My advice is to have at least three months of living expenses set aside. Also, plan on having 1% to 2% of the purchase price of your home set aside for maintenance. Keep in mind that if you are purchasing an older home, it might require more upkeep, so you should maybe put aside a bit more.
One way to offset that is to make sure you are taking good care of your home. You should also consider purchasing a home warranty to offset costs as well.
If you have any questions, feel free to give me a call or send me an email. I would be happy to help!