A Beginner’s Guide To The Top Five Cost Surprises For First Time Home Buyers
A home is one of the most rewarding purchases you can make, but it definitely comes with its share of unpredictable expenses. As much as possible, you want to avoid being caught by surprise as a house is a large investment. So, before you proceed to purchase a house, make sure you have an idea of what you’re getting into and whether you can afford it. You don’t want to fall in love with a home only to find out that the cost of living there will overextend you. To help you take into account all of the expenses involved, Keith Uthe Demystifying Mortgages has created a Beginner’s Guide to the top five cost surprises for first-time homebuyers. We’ve also included other items you should be considering, so you’re not shocked when the bills start arriving.
Hire a professional: The real estate market can prove to be quite difficult, especially if you have little knowledge of what the market is like and how the trends continue to shift. As a professional, I have the experience and skills required to ensure that you get the best deal on your dream house. My personal vision is that “everyone should be living a life of abundance.” I want to help my clients create a financial life by their own design, and part of this is the need to educate my clients on what to expect as a homeowner and the various options they have.
Ask about additional costs: Many people either forget or are not aware that there are additional costs to buying a house. They tend to focus only on the down payment, monthly mortgage principle, and interest. However, there are several other payments they must bear to complete the purchase of a house. Below are a few additional costs you need to consider when setting a budget for your home.
1. Closing costs
As you close on your mortgage, get ready for a laundry list of expenses, including mortgage interest, homeowners insurance, lender application fees, attorney’s fees, land transfer fees,
title insurance (the insurance policy for the deed), recording fees, and any potential real estate tax reimbursements if the seller has paid them upfront.
2. Home maintenance
In general, many experts use the 1% rule for maintenance budgeting. You should plan on paying at least 1% of your home’s value in maintenance costs every year. If you are buying a newly built home, consider the cost of landscaping, fences, decks that are not included in the purchase. Some lenders do offer a six-month to one-year appliance warranty program, so check it out.
3. Property taxes
Property taxes increase or decrease based on city ordinances and even specific neighborhood requirements. If you believe your property taxes are higher than they should be compared with other homes in your area, you can hire a lawyer to help grieve your tax assessment (usually for a percentage of the money that person saves you), or you can also do it yourself and save the fees.
Utility costs can be as high as property taxes. To get a clear sense of what to budget for utilities, ask a friend with a home in the neighborhood you’re considering to give you a peek at their monthly bills, making sure to adjust for the size of their home compared to yours. To compare utility provider options, please click here.
5. Homeowners insurance
If you’re getting a mortgage, you’ll be required to have homeowners insurance, and even if you pay cash for your home, you should have it anyway. You’re best off buying a replacement cost policy, which will cover the cost of replacing the items that get stolen or damaged in a fire, rather than one that gives you the depreciated value of the items lost. When buying a condo, be aware of the condo corporation’s insurance deductible and obtain a condo owner’s policy that includes coverage for the condo corporation’s deductible and your own personal items. You can obtain several quotes for your insurance to compare and decide what is best for you. As a mortgage broker, I have different insurance providers to introduce you to.
Get at least three quotes: Request quotes from at least three lenders. Rates can vary widely from one lender to the next, and getting a quote is free. So you’re doing yourself a favor by getting as many as you can. It also helps to get all your quotes in one day, if you can. Rates are constantly changing, and a quote you got yesterday may already be out of date.
Compare apples to apples: When you are looking for a mortgage, there is so much to choose from, including the different lenders that can assist you. “A lenders” is the term given to traditional lenders, such as banks and credit unions. Essentially, these lenders focus on customers who have good credit scores and a reliable source of income. “B lenders” are institutions that offer options for the “B” customer. Essentially, these institutions offer a lower barrier of entry to qualify for their products but can offset that with higher interest rates. Because type “B lenders” are not subject to the same regulations as type “A lenders,” they can charge unconventional fees. This is why you need to figure out what you’re looking for and stick to getting quotes from different lenders of the same type.
Cheapest is not always best: Some people shop around to compare interest rates and to find the best deal on a mortgage, but opting for the lowest interest rate is not always the best strategy. The interest rate can reflect many aspects of the mortgage, and each of these points should be analyzed to find the best mortgage product. As a broker, I can provide you with assistance in comparing mortgage terms and helping you determine which is the best solution for your needs.
Advice From The Pros
Do your research: Knowledge is power, so learn as much as you can about a maintenance project before getting quotes from contractors. Confirm things such as the contractor’s business license, business insurance, sign a contractual agreement and invoice, and never pay more than a deposit for 25% of the repair cost. Start verifying and comparing these costs as early in the process as possible. You never want to end up having to make a rushed decision that results in the wrong choice. Also, ask your mortgage broker for referral introductions to trusted providers for quotes on the above costs.
At Keith Uthe Demystifying Mortgages, my goal is to impact every person I meet in a way that could help them create a financial life by design so they can move towards a life of abundance. My experience, training, and knowledge as a Smith Manoeuvre certified mortgage professional, real estate investor, certified real estate investment adviser, and mortgage associate all play a part in what I give to those that I work with. Unlike an agent in a bank, I represent you, the client, to many different lenders to find you the best terms for your mortgage and make sure you understand what those terms mean. This should be as important as the rate when making your borrowing decision.