4 Expenses That Surprise First-Time Homebuyers
Authored By: Genisys Credit Union on 10/17/2018 
The American dream of owning a house still seems to be something younger people want and are actively pursuing. Many Millennials are confident they’ll achieve the American Dream of owning a home, yet more than half don’t have a plan to get there.
What many young homebuyers discover after they get into the home buying process is that there are added costs they did not think about. It is fairly easy to figure out what your monthly mortgage payment will be, but the costs of homeownership don’t stop there. Many of the additional costs take homeowners by surprise, including property taxes, insurance, utility bills, and more. U.S. homeowners can spend more than $9,000 per year on these hidden homeownership costs, according to a report by Zillow and Thumbtack.
Here’s a guide to the major items you should be considering with the purchase of a home.
Closing Costs
As you close on your mortgage, get ready for a laundry list of costs: Mortgage taxes, lender application fees, title insurance (the insurance policy for the deed), recording fees (paid to the county clerk’s office to record the deed), and any potential real estate tax reimbursements if the seller has paid them upfront. All in, you’re usually looking at an average of 2 to 5 percent of the total cost of the home. They’ll vary from state to state — for example, one county might charge $20 per page for recording fees, while another might charge $5. To get a better idea of the total closing costs you should budget for, Bankrate.com has gathered data from multiple lenders in every state to determine the average closing costs by state.
Property Taxes
Property taxes are based on an assessment of your property’s value using your local tax rate. This rate will vary based on city, ordinance, and even the specific house. The Tax Foundation has a property tax data lookup tool by county you can use when planning expenses. If you believe your property taxes are higher than they should be compared with other homes in your area, you can try to grieve your assessment. While there is no guarantee that you will have success in this process, between 30% and 60% of all properties in the U.S are overassessed according to the National Taxpayers Union. If that is truly the case, then you are likely paying too much in property taxes.
Utilities
Utility costs can be a significant monthly expense and having an estimate ahead of time is very helpful for budgeting. Utilities fall into 6 categories:
Generally, the larger the home, the higher your utility bills will be, but also the energy efficiency of the home will play a factor in the cost. Estimates also change with climate too. The typical U.S family spends $2,060 on average per year according to the U.S Department of Energy. To get a clear sense of what to budget, ask a friend with a home in the neighborhood you’re considering to give you a peek at his or her monthly bills, making sure to adjust for the size of their home versus yours. This can also be eye-opening when it comes to lawn care, water bills, and even the local price of groceries.
Homeowners Insurance
If you’re getting a mortgage, you’ll be required to have homeowners insurance. Even if you pay cash for your home, you should still have insurance to protect your investment. The most common type of policy will be based on replacement costs which will cover the cost of replacing the items that get stolen or damaged and the current cost to repair your home. According to the Insurance Information Institute, the average annual premium is $1,132. But you can save yourself a significant amount by shopping around, including your local credit union if they offer a discounted Home Insurance program. And ask about what discounts you can get, including discounts for security systems, working from home, and bundling coverage for your home with your auto insurance policy.
Finally, be aware of the limitations of homeowners insurance. Policies tend to only protect a home and possessions within, but if you’re buying a condominium, the co-op might require a liability rider for accidents on the property. And if you’re in a flood zone, you’ll need flood insurance as well.
The Bottom Line
Owning a home can provide an enjoyable lifestyle and can be a smart financial decision over the long term. The more you anticipate the potential costs, the more likely you are to have a positive experience.
Genisys Credit Union has several Mortgage programs to fit most needs, including a first time buyer mortgage to help make the process even easier. Review our home loans or contact us when you are ready and let us help you find out how much home you can afford.
© Genisys Credit Union and www.genisyscu.org, 2018. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Genisys Credit Union and www.genisyscu.org with appropriate and specific direction to the original content.
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