Hidden Costs First-Time Home Buyers Must Know
Hidden costs first-time home buyers must know: a comprehensive guide to navigating unexpected fees and expenses when purchasing your first home. From pre-approval fees to homeowners insurance premiums, discover the often overlooked expenses that can strain your budget. Gain insights into how these costs can impact your financial planning and make informed decisions.
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Laura Walker
Former Licensed Agent
Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...
Former Licensed Agent
UPDATED: May 26, 2023
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: May 26, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
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Are you a first-time home buyer? If so, it’s crucial to be aware of the hidden costs that can significantly impact your budget. In this comprehensive guide, we’ll explore the key topics related to “Hidden Costs First-Time Home Buyers Must Know.” From pre-approval fees and closing costs to home inspection fees and ongoing maintenance expenses, we’ll shed light on the often overlooked expenses that can catch you off guard.
- Pre-approval Fees
- Homeowners insurance
- Home Inspector Fees
- Closings Costs
- Maintenance Fees
By understanding these costs, you can make informed financial decisions and protect your pockets throughout your home buying journey. Don’t let unexpected fees strain your budget—take control of your finances and ensure a confident start to homeownership. Enter your zip code now to compare rates from the best insurance providers and secure your financial well-being.
The Hidden Cost of Pre-Approval Fees
When you have a general idea of what you’re willing to spend on a house, it’s important to get a mortgage pre-approval letter from a lender. This is typically your first step in the home buying process because it helps you do two main things.
- It increases your odds of finding a realtor
- It makes you appealing to sellers because they know your offer will be legitimate
Getting pre-approved from your lender is like proving to the bank you are in a financially good spot to take out a mortgage. Your lender will go over your credit score, verify your income, and check out your DTI (debt-to-income) ratio to determine the likelihood you will make payments faithfully.
It’s smart to visit a few different banks to get a feel for which lender can most closely meet your needs.
Buying a house is a big decision. You’ll want to make sure you are choosing a lender that meets your needs best. Start by comparing different mortgage lenders.
Cost: If you get pre-approved expect to pay about $200—$400 to your lender for the application, but some banks do not charge anything.
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The Hidden Cost of Homeowners Insurance
When you purchase your first home you’ll be required to get homeowners insurance. Basic homeowners insurance will help you financially protect your home when costly accidents and dangers arise.
Homeowners insurance works similarly to car insurance or life insurance. You pay a monthly or annual premium, plus a deductible when house damage fees arise.
However, you don’t get a monthly bill as you do for car insurance. Instead, it’s tagged on to your mortgage statement since your bank technically “owns” the home. So your insurance payment is part of your mortgage payment.
Homeowners insurance is tricky to put a price on because it is so customizable. For example, you can choose to pay a lower premium with a higher deductible versus paying a higher premium with a lower deductible.
Those who opt to pay a higher homeowners insurance premium will typically save money in the long run.
However, not every family can afford to pay a higher monthly/annual premium, hence the need for alternative options.
In addition, homeowners insurance varies by the type of house as well as the state that you reside in. To help you comparison shop for the best rates, check out this homeowners insurance tool.
Cost: As a general estimate, the average annual premium cost for homeowners insurance is around $1,200 annually. Plus you’ll pay a deductible fee on a case by case basis.
The Hidden Cost of Home Inspection Fees
Even though you may be in love with a house, it is important to get it inspected by a professional before you sign the dotted line. Home inspections should either persuade you to move on from a house or commit to it.
You may want to move on from a house if the inspection raises red flags that could end up costing you a lot of money in repair fees down the road.
You may be tempted to overlook that old roof now, but when the next heavy rainstorm comes in, you may find yourself spending thousands of dollars repairing the roof on your new home.
On the other hand, the inspection may show the house is perfectly fine. You may have reassurance there are no hidden dangers or money pits lurking beyond what you originally saw.
Cost: Home inspection fees can range anywhere from $200—$400 depending on the size of the home and will ultimately give you peace of mind on your decision to either purchase or walk away.
The Hidden Cost of Closings Costs
Closing costs complete the financial and legal transactions for your new home. They’re the costs of all the services and documentation needed to close the deal on your home to make it legally yours. Some of the items included in closing costs are:
- Appraisal fees
- Title insurance
- Title searches
- Deed-recording fees
- Credit reports
- Taxes
What is great about closing costs is that it is not always the buyer who is expected to pay these fees. Closing costs can fall on the buyer, the seller, or both, depending on the circumstances.
For example, if a person is trying to sell their home quickly, buyers often negotiate and ask the seller to cover closing costs in exchange for a quick home sell. Either way, it is wise to keep in mind that you could be needing a few extra thousand dollars to secure your new home.
Cost: On average, closing costs will typically be approximately two to five percent of the home’s value.
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The Hidden Cost of Maintenance and Upkeep
Whether you’ve purchased an existing home on the market, or you’ve built a new one, there’s no doubt about it — you’re making a sizeable investment. But it doesn’t end there.
When you invest in a home, you become responsible for everything on your property. You’re responsible for keeping up with the general maintenance of your home, including landscaping fees, updating appliances, weather damages, etc.
Think of your house’s potential annual maintenance cost. This can help you make an accurate decision of what you can truly afford, or what might be a stretch.
Those houses with pools and a luscious garden may be beautiful, but can you afford the extra $2000 in annual maintenance?
You should note that maintenance fees can be significantly reduced if you choose, or are capable of handling certain repairs and upkeep services on your own.
Cost: It is typical that you will spend about one to two percent of the value of your home to cover home maintenance fees each year. It’ll all depend on what you hire out and what you can DIY.
Frequently Asked Questions
What are the hidden costs that first-time home buyers must know?
Hidden car costs that first-time home buyers should be aware of include the potential impact of their new home’s location on their car insurance rates, as well as any changes to their commute or vehicle usage. Other costs may include fees for adding a new driver to the policy or upgrading coverage to meet lender requirements.
Will my car insurance rates change if I have a longer commute from my new home?
Possibly. If you move farther away from your workplace, you may be driving more miles each year, which could result in higher car insurance rates. Additionally, if you move to a city with more traffic or higher accident rates, your rates may increase.
Do I need to inform my car insurance company if I move to a new home?
Yes. It’s important to inform your car insurance company of any change in address so that they can update your policy and ensure that you have the appropriate coverage for your new location.
Will my car insurance rates go down if I bundle it with my home insurance?
It’s possible. Many insurance companies offer discounts to customers who bundle their home and car insurance policies. However, it’s important to compare rates from multiple providers to ensure that you’re getting the best deal.
How can I save money on car insurance as a first-time home buyer?
There are several ways to save money on car insurance as a first-time home buyer, including bundling your policies, shopping around for the best rates, and taking advantage of any discounts for good driving or safety features on your vehicle.
What should I do if I’m involved in a car accident after buying a new home?
If you’re involved in a car accident, be sure to exchange insurance information with the other driver and contact your insurance company as soon as possible. Your car insurance policy should cover damages to your vehicle and any injuries sustained in the accident, subject to your policy limits.
Can I change my car insurance policy at any time?
Yes. You can make changes to your car insurance policy at any time, although some changes may result in additional fees or changes to your premium.
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Laura Walker
Former Licensed Agent
Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...
Former Licensed Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.