Buying a home involves two main categories of costs: the upfront expenses you pay before or at closing, and the ongoing costs you will need to cover after you move in. If you are preparing to buy, it helps to plan for both so you can budget realistically before making an offer.
If you are thinking about purchasing your first home in the near future, then you need to be aware of the costs that come with it. It is very tempting to focus only on the sticker price of the house, but the down payment is not the only major expense you will face.
There are numerous other costs for which you need to budget as well. By thinking about upfront buying costs and ongoing homeownership expenses ahead of time, you can make a smarter financial decision for you and your family.
There are a handful of one-time costs and several “prepaid” charges that you will need to budget for starters. In terms of prepaid expenses, you will need to come up with said monies and likely place them in an escrow account. These monies will cover things like interest, insurance premiums, property taxes, and any expenses that accrue from the date you close on your home until your first monthly mortgage payment.
Additionally, you will need to budget for moving costs, closing costs, down payment fees, taxes, and possible discount points. If you opt for a mortgage and discount points to lower your interest rate, you will also pay these upfront. Moreover, there will be lender fees as well, which vary from lender to lender.
Depending on the part of the country in which you live, real estate taxes can be significant. Often the second-largest expense of owning a home is your property or real estate taxes (after mortgage interest). For example, it is not unusual for even a modest home to cost thousands of dollars in real estate taxes per year. Therefore, even though you have budgeted for your monthly mortgage payment, you also need to budget for real estate taxes.
Usually, your mortgage lender is going to hold your real estate taxes in escrow for you, so you do not end up having to write a large check at the end of the year. Note, if you opt to waive an escrow account, then you will still have to pay these costs upfront at closing. Going forward you will then be required to pay the county and the insurance company directly instead of in combination with your mortgage payment. This can result in large unexpected bills coming due if you don’t budget properly. Moreover, depending on what type of mortgage loan you have and how much money you are to put down, you may also need to budget for mortgage insurance or private money insurance (PMI) as part of your home expenses.
Furthermore, you also need to think about homeowners’ insurance and utility costs. Some of the utilities you will have to pay for include internet, phone, cable, gas, electricity, and water. When this is added to your homeowners’ insurance expenses, this can also add up to several hundred dollars per month. Therefore, make sure that you can afford not only the mortgage payment but these recurring monthly expenses as well.
Ask any homeowner, and they will tell you that unexpected maintenance and repairs crop up despite your best efforts. For instance, major systems might need to be repaired or replaced. So, it is wise to have a sort of emergency fund for repairs and more.
Finally, if you end up living in a neighborhood that has a homeowners association (HOA), then you will also need to add HOA dues or fees to your home expenses. Likewise, as a homeowner, you will also need to foot the bill for regular maintenance tasks as well. This typically includes things like landscaping or yard work, and so on.
Before making an offer, take a practical look at what these expenses could add up to. Start by reviewing your loan estimate carefully so you understand the down payment, lender fees, prepaid items, and other closing costs. Check the property-tax history for the home you are considering, request homeowners insurance quotes, and ask the seller or utility providers about typical monthly utility costs. If the property has an HOA, review the HOA documents and fee schedule. Finally, set aside funds for ongoing maintenance and unexpected repairs so your budget includes more than just the mortgage payment.
Ultimately, the best approach is to budget for both the costs of buying the home and the costs of owning it month after month. Before moving forward, review your upfront cash needs, estimate your recurring monthly expenses, and leave room in your budget for maintenance, repairs, and any HOA fees. Taking the time to plan ahead can help you avoid surprises and make a more confident home-buying decision.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Budget for closing costs, prepaid items collected at closing, lender fees, possible discount points, moving expenses, property taxes, homeowners insurance, utilities, maintenance, repairs, and any HOA dues. The total cost of buying and owning a home is more than the purchase price and down payment alone.
Besides the down payment, buyers may pay closing costs, lender fees, prepaid interest, homeowners insurance premiums, property taxes, and any discount points chosen to lower the interest rate. Some of these charges are often placed into an escrow account at closing.
They often are, because many lenders collect money for property taxes and homeowners insurance through an escrow account as part of the monthly payment. If escrow is waived, those costs are usually paid directly to the county and insurance company instead, which can lead to larger separate bills.
Monthly ownership costs usually include the mortgage payment, property taxes, homeowners insurance, utilities, possible mortgage insurance, HOA dues if applicable, and routine upkeep. The exact amount varies by home, loan, location, and household usage, so it is important to estimate each category before buying.
No. Mortgage insurance depends on the loan type and how much money is put down. Some buyers will need to budget for mortgage insurance or PMI as part of their ongoing housing costs, while others will not.
It is wise to keep a dedicated emergency fund for maintenance and repairs because unexpected issues can arise even in a well-kept home. Major systems may need repair or replacement, and routine upkeep continues after move-in.
If the property is in a homeowners association, you should expect HOA dues or fees in addition to your other housing costs. Review the HOA documents and fee schedule before making an offer so you understand the required payments.
Common monthly bills include the mortgage payment, property taxes and insurance if escrowed, electricity, gas, water, internet, phone, cable, and any HOA fees. Homeowners should also leave room in the budget for ongoing maintenance and surprise repairs.
Review the loan estimate to understand the down payment, lender fees, prepaid items, and other closing costs. Check the property’s tax history, request homeowners insurance quotes, ask about typical utility costs, confirm any HOA fees, and reserve funds for maintenance and repairs.
Yes, you may still need to pay those costs upfront at closing. After that, you would generally pay the county and insurance company directly rather than having those amounts included with your mortgage payment.
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