If you are feeling a little daunted by the cost of buying a home and fear that you might be missing something, this blog is for you! It is important to us that you know what to expect and how to budget for it. We also want to help you keep a reasonable reserve fund that you can turn to if an unexpected expense does come up. None of us like surprise expenses, but the most prepared and organized of us, can roll with the punches when they come our way. We want to help you to be that person.
Welcome to the 12th post in our “Buyer” blog (and video) series. If you have been following along, we love having you and hope you are enjoying them, for those of you who are joining us for the first time, we are thrilled you are here and hope that you will follow us.
Today’s topic is: What are the Hidden Costs of Buying a Home?
Owning your own home is profoundly different from renting or living in a home that you do not own. Home ownership is wonderful in so many ways, but it is expensive and requires careful planning and budgeting. We want to help you venture into and maintain home ownership with sufficient information about the cost of settling down and maintaining your own independent roots, so that you can enjoy it without the pressure of unexpected and debilitating expenses and bills.
There are two prongs to the discussion about hidden costs of buying a home:
- Pre-closing and closing costs; and
- Post-closing costs.
PRE-CLOSING AND CLOSING COSTS
- Inspections – it is likely that the first expenses you will have in the home buying process are the inspections. These will vary depending on the condition of the home and will start with the three main inspections: Home Inspector, Termite Inspector and Heating Ventilation and Air Conditioning Inspector. These inspectors may reveal information that cause you to need additional inspections. The bottom line is that you will need to be prepared to lay out some of your hard earned cash on inspectors.
- Lender/Broker Fees – your lender and/or broker have costs and fees associated with putting your financing in place (credit report, wire transfer fees, commissions etc.).
- Title/Attorney Fees – In Arizona very few home purchases require an attorney and most people choose to use a title company to handle the transaction, either way, they will have fees and costs associated with ensuring that title for your new home is put into your name.
- Escrow Fees – Your escrow officer will ensure that the money paid by you to purchase your new home is dispersed to the appropriate parties and finally to pay the remaining balance to the seller. Examples of the things that the escrow officer adjusts and handles payment of are HOA fees, taxes, insurance, the seller’s mortgage and more. The buyer may be responsible for payment of all or a portion of the escrow fee.
- Interest – your lender will require that interest due on your mortgage for the period between your closing date and the first day of the next month be paid in advance.
- Utilities – some utility companies require an initial upfront deposit before they will activate services.
On average, pre-closing and closing costs will run about 2% – 5% of the purchase price of your new home. We recommend that you budget about 5% of the price of your new home to cover your pre-closing and closing costs. You may not need all this money but will have it if you do!
- Maintenance and repair – When you own your own home, all maintenance and repair costs are your responsibility and will vary depending on the age of your home. Obviously, older homes tend to be more expensive to maintain than newer homes so there is no magic number here. For newer homes it is probably safe to budget about 3% of the purchase price of the home and for older homes you may want to ratchet that up to about 5% of the value of the home per annum. If you allow your “Maintenance and Repair Fund” to accumulate over time (i.e. don’t spend the money on something else if you have some left over at the end of the year) it should cover you for the mid-range expenses such as painting the exterior and the big ones such as roof replacement when they “unexpectedly” turn up.
- Ongoing expenses – every month you will have expenses such as utilities, phone, internet and cable. You may also have quarterly expenses such as HOA fees and trash collection, and annually your expenses will be things such as taxes and insurance. We recommend that you track all your expenses and budget for them with a 5% cushion to keep you safe when your various providers present you with rate increases.
- Home Improvements – most homeowners want/need to make improvements such as updating kitchens and bathrooms and/or do “add-ons” such as decks, patios and fire-pits. There is no end to what you might want to do to improve your living space. Budget for it so you can enjoy those improvements, free of financial stress!
- Miscellaneous – There are potentially hundreds of other expenses associated with owning your own home, some you can avoid by doing it yourself, others you will want to hire out which creates additional monthly costs. Some of those expenses that come immediately to mind are: house cleaning service, pool maintenance, security systems, and pest control. There are many others, and you will learn what yours are, as you come across them.
Careful budgeting and diligence should keep you safe from unexpected expenses. Let’s face it, while you will experience the blind-side effects of the costs of home ownership, if you have budgeted for the unexpected, they are less likely to be debilitating or to diminish the joy of owning your own home.
That’s it for today’s post, our next blog will be the start of a new series, so watch for it and in the meantime, if you want to stay up to date on all things Anthem, make sure you like our Facebook Page at ‘Wise Move AZ’ or subscribe to our Wise Move AZ channel on YouTube.
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Remember, if you or anyone you know is looking to buy or sell their home, please give us a call! It’s always the right time to make a wise move with the Wise Move AZ Team.