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The Hidden Costs of Buying a Home

couple laying on the floor surrounded by moving boxes

Preparing to buy a new home can be both exhilarating and stressful at the same time. Between credit cleanup saving for a down payment and shopping for a property that meets their budget as well as their desires, prospective home buyers have a lot on their minds. Many house hunters understandably focus on the price tag and the monthly mortgage payments, which can vary as interest rates fluctuate. But, first-timers must also remember the many hidden costs associated with the investment.

As the National Association of Realtors notes, budgeting for a new home purchase should account for all the additional items, which can amount to more than one month's mortgage payment, depending on what and where you buy. Being prepared means familiarizing yourself with all the parties involved in the process and having extra cash stashed away both for costs that may be hidden upfront or on a more sporadic basis. Some of these expenses include:

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Move-In Costs

Depending on the distance you're moving, the size of your family, the amount of furniture you have and a litany of other factors, moving can quickly become expensive. If you choose to hire a professional moving company, be sure to conduct thorough research, using resources such as the Better Business Bureau to choose the most cost-efficient and reliable options. Remember that you'll also have to set up, connect and pay for utilities such as water, electricity, cable and gas, all of which must be factored into your monthly budget.

Transaction-Related Fees

In addition to that sizeable down payment you've worked so hard to save for, don't forget about what's owed to your real estate professional, your mortgage appraiser and your home inspector. There are also significant taxes that add to the upfront purchase cost, perhaps even some associated with the previous owner's time in the house, depending on when it's purchased. In the event that you're moving into a house or condo that's part of a homeowners association, you'll owe dues on either a monthly or upfront basis - perhaps both—but these will help cut down on some of the other maintenance expenses over time.

Upkeep and Cosmetic Concerns

Your short-term plans for a home may dictate the need to account for the costs of maintenance and renovations sooner rather than later. You can save on your mortgage payments by purchasing a home that needs work, but doing so requires an accurate understanding of how much each project will cost and at what pace the process can unfold. Over the long term, building value in your home is contingent upon enhancing and maintaining it. The age of the structure and the level of appreciation you seek may mean that considerable monthly expenses are allocated toward routine upkeep and minor improvements. These efforts can pay off doubly down the road if you are looking sell or refinance the home, but the expenses associated with them must be accounted for carefully and accurately.

Insurance Items

Homeowners insurance and title insurance are not optional expenses - they're absolutely essential to securing the value of your home and everything in it. Title insurance protects you from liens that may be attached to the property by way of a previous owner, or from any complications with the deed. Private mortgage insurance may be required if you buy the home with a down payment of less than 20 percent of the purchase price. And depending where you live, it's worth exploring the need for—or requirements surrounding—flood insurance and other types of coverage against natural disasters. These likely aren't covered in your standard property insurance policy, but they'll be well worth the expense in the unfortunate event of a worst-case weather scenario.

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