When you're planning to buy a house, it's important to ask the big questions like “What credit score will a bank require for a mortgage or loan?” or “What is the down payment for FHA loan?” In addition, there are also a number of often-overlooked factors that can significantly affect a person's costs when buying a home.
If you're a first-time buyer and exploring the true costs of homeownership, make sure you consider these four unexpected costs and budget for them.
Odds are you have already tried to factor these into your cost estimates of a mortgage, but estimates from online calculators are often off by several thousand dollars. Whether you're working with FHA lenders in Texas or not, this is often the case.
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That's because every property will have different fees associated with it during the closing process. Homebuyers can use an estimate while house shopping—but once you've settled on a home, ask your realtor and your bank for a more accurate estimate of the closing fees.
Determining your home maintenance costs can be extremely difficult due to the inability to predict when things will go wrong. However, homebuyers can use a few different formulas and tricks to estimate costs.
To start, assume that your annual overall maintenance costs will be about 1% of your home's total value. This is a rule used by many real estate investors, but keep in mind that you might not incur these costs every year. In other words, even if it is not needed in some years, putting aside this amount will help when larger expenses come down the road.
Other homeowners also prefer to plan their major purchases and repairs. For example, monitoring the age of appliances, the roof, and the HVAC system can be worthwhile while putting money aside to plan for repairs and replacements as these systems age. HVAC units typically need replacing every 15 years, asphalt shingle roofs last about 20 years, and water heaters last about ten years. Most major kitchen appliances will last about 15 years, electrical panels can last about 30 years, and foundations usually need work every 50 years.
Homeowners who upgrade to larger living space (even if you’re going from renting an apartment to buying your first home) tend to underestimate their utility bills. To ensure you’re not caught with costs that exceed your budget, start by determining what type of utilities a home needs. Ask the realtor if a house is on public sewer or septic and whether the kitchen uses gas or electricity.
While it is possible to estimate utility bills with online calculators that compute the cost of usage of every light fixture and appliance in a home, in many cases, it's easier to simply ask the current owners of a house for a copy of their most recent utility bills.
You may also want to consider the costs of added amenities. For example, if the property has a pool—and you’ve never had a pool before—don’t forget to estimate additional home utility costs for operating the pool in addition to what you’ll need just for the house itself. Double that amount if it is a heated pool.
Use an online calculator to determine the cost of heating and cooling the home based on the square footage of the house. Calling the local utility department that handles water, sewer, and trash can also give you an idea of how much those services cost.
Many of the best mortgage lenders in Texas require that borrowers place the money for property taxes and home insurance into an escrow fund. This fund is paid every month as part of your monthly mortgage payment.
In some cases, this means hundreds or even thousands of additional dollars that homeowners must add to their budget in addition to a mortgage payment’s principal and interest amounts. It's important to note that this payment is not optional. Even during financial hardship, the mortgage company will still insist on receiving the entire monthly mortgage payments (including escrow) and will put a home into foreclosure if it is not paid.
Fortunately, it is possible to shop around for a better deal of homeowner's insurance. Every couple of years, it's a good idea to check prices on policies and see if you can save money. Be aware, however, that it is pretty rare to save money on either of these. Municipalities rarely choose to lower taxes, and insurance costs have only been trending upwards over the past several years.
While these four unexpected costs are essential to add to your budget, there can be several other 'hidden' costs with new home purchases, such as home warranties and HOA fees. Be sure to ask your realtor about these when planning for your homeownership costs! For help with financing a new home with FHA loans or conventional loans, don't hesitate to reach out to our Texas United Mortgage Company team today.
Learn more about budgeting for a new home with our free resource, “The Definitive Home Buying Cost Worksheet!”
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