First-Time Homebuyer Expenses
- May 12, 2023
- Ailin Goode
- Personal Finance
Purchasing a new home is undeniably exciting. But knowing exactly what costs are associated with buying a house prepares you to successfully navigate your first home purchase. From down payments to closing costs and home maintenance to insurance payments, New American Funding can help you better anticipate the true cost of first-time homeownership.
The down payment is easily the largest upfront expense you will incur as a first-time homebuyer. Down payments are calculated as a percentage of your new home’s purchase price. However, saving a portion of your income for a down payment may not be as much of a chore as you might think.
Many people may think that you need to save up 20% for your down payment, but this is absolutely not the case. Far from it, in fact. There are some loan programs that fall under the governance of federal agencies like the FHA or the VA. These programs can help finance your home and require much smaller down payments.
These lower down payment programs can make a big difference when it comes to saving for your down payment. Conventional wisdom is that on a $300,000 home, you would need a 20% down payment, which would require you to pay $60,000 upfront.
However, depending on which loan program you qualify for and choose, you may be able to buy the same home with a 3.5% down payment, or a down payment of $10,500.
Communication with your lender is key to finding the right mortgage to fit your individual financial needs. With a variety of loan types available, it is even possible to qualify for a zero down payment mortgage if you meet the applicable criteria for approval.
Benefits of Larger Down Payment
If it is within your means to put down a larger down payment, you may receive huge benefits, including:
- Avoiding private mortgage insurance (PMI) typically associated with down payments below 20%.
- Lower interest rates due to borrowing less money and presenting lower risk.
- Lower monthly payments for the duration of your loan.
Benefits of Smaller Down Payment
While a larger down payment has its advantages, it may make more financial sense for you and your family to save up for a smaller down payment.
Using a lower down payment loan program may make it easier to get you into your new home sooner without the long-term worry about saving up to fund a 20% down payment.
Closing costs are additional related expenses one is responsible for when closing on a house. They tend to range between 2-5% of your total purchase price, but closing costs can change between states and even counties.
These can include:
- Taxes and insurance escrow payments
- Mortgage interest payments
- Attorney’s fees
- Preparation fees
- Lender application fees
- Home appraisal fees
- Home inspection fees
You can also include title insurance in your closing costs.
Can I Negotiate Closing Costs?
Yes, negotiating closing costs is common. You can work with your lender to bring down the total cost of your purchase by doing things like rolling your closing costs into your mortgage or asking your seller to offer seller concessions to bring down your negotiable closing costs.
Property Taxes and HOA Fees
Property taxes and HOA fees can seem daunting, but they go towards paying for things like pest control, lawn maintenance, city services, local schools and government. Becoming a homeowner can also mean investing in the health of your overall community.
In addition to other costs, lenders also require homeowners insurance, so obtaining a policy in advance will set you up for success. While standard policies cover your dwelling, personal property, liability, and other additional living expenses, specialized policies can make sure you're protected in the event of natural disasters like floods or earthquakes, depending on where you live.
Home Maintenance Costs
First-time buyers can easily underestimate the cost associated with maintenance and repairs. Different homes require different types of work depending on their age and condition. For example, one home may require electric work, while another might only need minor cosmetic repairs.
But how much should you save for home maintenance? ?
Saving 1-4% of your home’s value can help you prepare for home maintenance costs as they come up. With common house maintenance tasks like yard work, gutter cleaning, pressure washing and pest control quickly accruing costs, you will want to have a sizable chunk put away to address these problems as soon as they emerge.
The size of your home can determine what furnishings you may need to buy. You may already have a bedroom set, dining room table, TV stand, and other essential home furnishings from your rental. However, chances are you will need to invest in furniture and appliances that better fit your new home.
Follow these tips to learn how to save on furniture and appliances:
- Estimate your budget in advance
- Shop with intended use in mind for essentials
- Look out for special deals and sales
- Shop for pre-owned furniture using secondhand markets online and in-person
Consider negotiating for appliances with seller when buying your home
As a homeowner, you are responsible for 100% of utilities, from the heating and cooling to the lighting, internet, and more. If your new home is bigger than your previous rental, you may be in for higher utilities expenses to accommodate the size of your upgrade. Additionally, where you are located will help determine the average monthly utility expenses for a house. Hotter climates may require less spending on heating, whereas you will see an increase in cooling expenses.
Prepare for Additional Expenses as a First-Time Homeowner
Whether it’s a fixer-upper or a turn-key house, buying your first home is a momentous event. But many first-time homebuyers underestimate the true cost of their first home. From the down payment to closing costs, furnishings, utilities and taxes, knowing what expenses first-time homeowners can expect will help you prepare yourself for the committed investment of homeownership.
For more information regarding loans and homeownership contact New American Funding. We have many resources we’ve designed specifically for first-time homebuyers. Our most recent is our Pathway to Homeownership program. It offers qualified borrowers in select areas up to $8,000 in assistance. This money can be used to cover your down payment, or other upfront costs, and can be combined with other assistance programs.
We also provide tools, like our mortgage calculator, and other resources to help you calculate your mortgage costs. Our loan officers will also be happy to answer any questions you may have about a service or product we offer.