Buying a home is exciting! Buying a home is expensive. There are quite few expenses when you buy a home. Some are optional, some are mandatory. Make a plan to save for these expenses.
The biggest expenses when you buy a home is the down payment. If you are getting a loan to buy your home you will need to make a down payment (unless it is a VA or USDA Loan). There are FHA loans that require a minimum of 3.5% down. Conventional loans generally require 5% down but if you have great credit there are some 3% programs. Discuss your options with a lender.
One of the major expenses when you buy a home that is due right on COE (close of escrow…the day you take possession of the house), are closing costs. Closing costs represent the fees associated with getting a mortgage and registering the new house in the buyer’s name. Even with a zero down payment mortgage (VA, USDA) the home buyer generally is required to bring a check to the closing table in order to pay for the closing costs. Without this payment the home cannot close.
The money used to pay for closing costs must come from income sources of the home buyer and cannot come from credit cards or a loan. The lender will investigate all deposits into your accounts before accepting it as payment. Generally you want it to age 90 days in your account. Once the lender has verified the source of gift money the home buyer can use that money to pay for closing costs and put any remainder towards down payment.
Home buyers can ask for the seller to pay for closing costs. When the buyer makes an offer to the seller there is a place in the contract to request a dollar amount or percentage of purchase price to be paid by seller for the buyer closing costs. The seller does not have to agree to pay closing costs and sometimes may raise the purchase price of the home on the offer in order to cover the closing costs. In a sellers market this will often not be accepted by the seller.
Another of the major expenses when you buy a home is property taxes. Property taxes are prorated so the seller will pay for the portion of taxes for the time they were still living in the property and the buyer will be responsible for the part during which they take ownership of the home and going forward. Sometimes part of the closing costs and money brought to closing by the home buyer includes some of the pro-rated tax amounts or includes amounts that will be put into an escrow account which is described below.
An escrow account is an account setup with the mortgage company that is used to pay the annual insurance bill as well as property tax payments. This amount is added to the monthly principal and interest payment to the mortgage company. For example if your monthly principal and interest payment is $1000 and $200/mo is needed in your escrow account to pay your taxes and insurance…then you will owe $1200/mo to your mortgage company.This is known as PITI principal, interest, taxes and insurance.
Most communities in the Phoenix area have HOA (home owners association). You will need to budget to allow for that payment.
Unless you are a monk or just came back from backpacking in Europe (with no belongings) there will be moving expenses associated with going into your new home. The costs for moving can be cheaper if you are able to rent a truck and ask a few friends to help you move your belongings to your new home. The cost of a rental truck, boxes, and other moving and packing supplies pizza and beer should not run you that much.
On the other hand it may make more sense to hire professional movers who will help you disassemble your furniture and move it to your new home placing it exactly where it needs to go and assembling everything they disassembled. Movers cannot only help you move your belongings they can also help you pack and unpack if you need them to and pay for their full service move.
Utilities will need to be paid for on a monthly basis. Electric, water, gas, internet,cable, phone bills, trash, water and sewer will become the responsibility of the homeowner. Some utility companies will require a deposit for those with less than established credit records in order to start service in your name.
Certain appliances may be needed such as washer/dryer, refrigerator, microwaves, and other small household appliances (vacuums, toasters, etc) to help around the house. You may need sofa, table, chairs and bed…….but this can come in time. You may need blinds or curtains for your windows…but a sheet can give you some privacy.
Yard maintenance will require a lawn mower and other lawn tools to make sure the outside looks good. The HOA may fine you if you do not keep up the yard. You could also contract out the landscape maintenance to a service for a regular monthly fee.
Buying a new home can be fun and exciting, but it can be expensive. By understanding the expenses you will pay as a new homeowner you can better plan your budget ahead to time to make sure everything is done properly and on time as needed.