Making plans to buy your first home is an exciting time, yet with the recent shifts in our economy, it can be daunting as well. To keep your homebuying process moving more toward exciting than overwhelming, you’ll want to understand the additional expenses that will most likely go along with your new monthly mortgage payment. The more you can plan for these expenses to occur, the more they will become a normal part of owning a home and less overwhelming.
The good news for new homeowners today is the real estate market is becoming more balanced. The bidding wars have calmed down and there is more time to negotiate a fair offer. However, it is still a competitive marketplace because of the continued lack of homes for sale. The first best step you can take when thinking of buying a home is to meet with your banker and get a mortgage prequalification. Your mortgage prequalification will let you and your real estate agent know how much you can afford, so you can act realistically when you want to make an offer on a house. You can lose out on a good deal, or a home in your price range, if you’re not ready to make an offer.
Here are seven unexpected first-time homebuyer expenses to consider when you begin shopping for your first home.
- Insurance, Taxes and Homeowner Association (HOA) Fees. These are three expenses that you’ll want to understand as you work with your lender and real estate agent. You will need homeowner’s insurance for your property and belongings. However, depending on the size of your down payment and type of mortgage loan you choose, you might also need Private Mortgage Insurance (PMI). PMI is a type of mortgage insurance that a lender might require to protect the financial institution if you are unable to pay your mortgage. You will also have property taxes – make sure you consider the fact that they may increase every year. You will also want to know if the new home you’re considering has an HOA fee. Some Associations will take care of paths and other neighborhood amenities like playground equipment or club houses. Know these expenses upfront so nothing is unexpected.
- Using More & Additional Utilities. Oftentimes, we move into more square footage, or our home is now a standalone. Therefore, heat, air conditioning and electricity costs might be new if they were included in your rent, or they might be higher than what you were used to paying. You might also have other utilities like trash and water. Make sure to ask sellers for receipts or average utility expenses when looking at homes.
- Maintenance & Emergency Costs. The best thing you can do when you decide to buy a home is budget for repairs, maintenance and emergency costs. When you own your home, you can’t call a landlord to fix your broken garbage disposal, repair your furnace, or replace the cracked cement in your sidewalk. Many first-time homeowners are caught off guard with the number of things that need repairing. It’s smart to set aside money for maintenance; and fix or replace things regularly before they break. And you will also want to plan on setting aside money for an emergency – like when you realize your basement just flooded or you roof is leaking during a rainstorm!
- Needing New Furnishings. So the couch that you have loved in your apartment now looks too small, old and outdated in your new home. Or you have an extra guest room or office finally – and no furniture. Check out the window treatments. Look at the flooring. You might need a washer and dryer. All of a sudden, the color scheme you have loved just doesn’t work in your new home. Be prepared to like what you have or accept that you might need to budget some extra money for new furnishings.
- A New Yard! Oh the joys of having your own yard. Kids can play, dogs can run, friends and family can gather for barbeques. And now you get to take care of the new yard. Your grass will need mowing and fertilizing. Your shrubs and trees will need trimming. Your flower beds may need mulching. The leaves will need raking. Oh and the snow will need shoveling. Make sure you have the tools to take care of your yard – front and back.
- Finding a Fixer Upper that Needs Too Much Work. Finding a fixer upper to save money can lead to additional expenses! When you find a home that meets your budget, but needs a lot of work, you’ll want to be sure your intentions are manageable to fix and update everything to meet your lifestyle. We all know people who say they can fix anything (think of anyone in your family?) and it turns into a nightmare or worse – too expensive or time consuming to complete. Make sure you know what repairs and updating needs to happen, when you want it completed, who can do the work, and at what cost. Even though you thought you found a great fixer upper, you don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs and updates.
- STOP All Future Credit Expenditures! Once you apply for a mortgage, your credit report is pulled and that is one of the tools your lender will use to determine your final mortgage qualification. If all of a sudden, your credit report shows that you signed up for a new credit card, or that you bought new furniture on a store credit special for example, your lender will have to completely redo your mortgage based your new credit report. In some cases, this can change the mortgage agreement and possibly impede the ability to get the mortgage or delay the process enough to lose the home. Do not apply for a credit card (even if you are offered a great deal!) or another loan and make sure you make all your payments on time. This one thing can slow the process down and cause an unexpected expense just by doing something that changes your credit report.
Buying your first home is a joyful and exciting time, especially if you are prepared for the unexpected expenses. Expenses can often feel overwhelming. However, if you’re aware of most of these expenses ahead of time, you can protect yourself and prepare for the excitement… and the expenses of home ownership.
At Kalamazoo County State Bank our mortgage professionals are ready to help you apply for your first mortgage and offer you financial advice, too. Get prequalified today!
Call us at 269.679.5291 or visit us online at https://kcsbank.com/mortgages/.
Kalamazoo County State Bank is an Equal Housing Lender.
