There’s no use sugar-coating the facts: Buying a home is expensive. You could spend months, even years, just saving up your down payment. After all that hard work, the last thing you want is to face unexpected expenses that may derail your home purchase, or at the very least, add financial stress to what should be a joyful milestone in your family’s life.
Keep that from happening by going into your home-buying experience with your eyes wide open to the potential for unexpected expenses like these:
1. Closing Cost Shocker
On average, closing costs can range from 2% to 5% of your home’s purchase price. For a $200,000 home, that’s anywhere between $4,000 and $10,000 to cover items like your:
- Loan origination fee
- Home and pest inspection fees
- Prepaid property taxes and mortgage insurance
- Title insurance
- Recording fees
- Underwriting fees
You can put money aside for your closing costs, but you won’t have a clear idea of what those costs will be until you receive a Good Faith Estimate (GFE) from your lender after you apply for your mortgage.
To add even more uncertainty, your actual closing costs can legally change by as much as 10% from your GFE. You could face $400 to $1,000 in additional closing costs that you may not find out about until you receive your HUD-1 settlement statement 24 hours or so before closing.
Closing costs can fall into one of three categories: those that can’t increase at all, those that can increase by 10%, and those that can increase by any amount.
Some closing costs are negotiable, and some, like over-the-top administrative fees, are unnecessary. Ask your lender to explain each charge and if any fees can be lowered or removed. You also have the option to walk away and find a new lender, although doing so will obviously affect your move-in date and could nix your home purchase completely.
2. Home-Buying Emergency Fund
At any point in your home-buying process, a glitch could throw the whole business for a loop. More often than not, the only solution that will keep things moving is a chunk of extra cash.
A low appraisal, for example, is a huge problem since most lenders won’t approve a mortgage that doesn’t meet certain loan-to-value requirements. But, if the appraisal is off by just a few thousand dollars, it’s possible that the buyer and seller can meet in the middle and keep the deal from going down the drain.
Approach situations like this cautiously. Try to keep emotion out of your decision, and never pony up additional cash unless:
- You have the money on hand—no loans or gifts from your parents.
- Your agent has assured you, based on current market conditions, that the home is worth what you’re paying for it, and it is likely to grow in value over the years.
- You plan to stay in the home long enough for its value to grow, reducing the risk that you’ll lose money on the purchase.
3. Moving Day Odds and Ends
Whether you pay a moving crew hundreds of dollars to pack up and move your belongings, or you provide a pizza dinner to a handful of your best friends after they help you move, you’re going to have plenty of moving expenses.
- Boxes, bubble wrap and other moving supplies
- Deposits for utilities
- Cleaning supplies
- Appliances that aren’t included in your home purchase
- Any pre-move-in upgrades like painting, new flooring and closet organization
While you wait for your closing date, get good estimates for what these costs will be: request quotes from moving companies, shop for appliances, etc. Again, pad your move-in budget a bit so things go as smoothly as possible.
It’s also tempting to buy new furniture for your new home, and that’s cool if you’ve budgeted for those purchases. Just don’t let the excitement of being in a new home cause you to overspend on items you don’t need right away.
Tempted to buy new furniture for your new home? That’s cool if you’ve budgeted for those purchases. Just don’t let new home excitement cause you to overspend on items you don’t need right away.
Save More With Advice From a Real Estate Pro
Home buying may be expensive, but don’t let that put you off. The process can also be rewarding. Work with a real estate agent who has the experience to help you anticipate your costs and reduce your expenses wherever possible.
article courtesy of Dave Ramsey