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The Hidden Expenses First-Time House Hunters Should Budget For

Vonetta Young thought she was prepared to purchase her first home, and she knew exactly what she wanted.

She and her husband had gotten their paperwork in order, found a realtor they trusted and even attended a seminar for first-time homebuyers so they’d know exactly what to expect.

“We’re both in our early 30s and we don’t have kids yet, but we’d like to. So we’re like, ‘Well, what’s the best way to start establishing ourselves financially?’” she said. “Buying a house just seemed like the right way to do it.”

Young, a writer, and her husband, a financial attorney, started looking at houses in Washington, D.C. Their hearts were set on a detached house with at least three bedrooms. They were quickly met with more than a few surprises in their very in-demand market.

“The market in D.C. was just ridiculous. We lost two bidding wars, so that was one thing we were not expecting,” Young said. “We wound up having to compromise with a condo instead of a detached house.”

The couple bought their condo in the summer of 2017—a 1,100-square-foot home with two bedrooms.

“First-time homebuyers might be surprised by some of the costs they face as a buyer and newly minted homeowner, especially ones that they didn’t have to take care of as renters,” said Sarah Mikhitarian, senior economist for Zillow. “The main thing buyers can do is to do their research. Make sure they’re aware of all of the costs that go into buying a home and then maintaining it.”

“The main thing buyers can do is to do their research.”

Take a look at some of the expected—and unexpected—costs of buying your first home.

House Hunting

Before you even set foot inside a house for sale, you need to get your financial house in order and find out what kind of mortgage you can afford.

“They should definitely have a pre-approval,” said New York realtor Laura Magner. “What they need to have is two years in tax returns, they need pay stubs—recent pay stubs—probably a month’s worth.”

Magner said that many of her clients can afford less than they think they can. And it happened to her too. When she and her husband went to buy their very first house in 1986, they set a budget of $250,000.

“We started looking at houses and we were very disappointed in what we found for $250,000,” she said. “We ended up qualifying for $68,000.”

The average home price is about $235,000, according to the 2017 Profile of Home Buyers and Sellers put out by the National Association of Realtors. First time home buyers who took out a mortgage typically financed about 95 percent of the purchase price, compared to 86 percent of repeat buyers.

First-time buyers accounted for 34 percent of all home sales, proving the American dream is still alive and well. But budgeting is something many have trouble with.

“First-time buyers are significantly more likely to go over budget than repeat buyers when purchasing a home,” Mikhitarian said. “About a third of first-time buyers spend more than budgeted.”

And while looking at houses is free, aside from the time it takes and the gas you spend to get there, you will start spending money when you find one you like, namely in the form of home inspections

In Rockland County, New York, where Magner is based, a home inspection can cost upwards of $700 and prospective buyers pay that whether they end up getting the house or not.

In Young’s case, the booming, competitive market in Washington D.C. meant paying for pre-inspections simply just to put an offer on the house. They initially spent $750 in pre-inspections for houses they did not get, though one seller did refund their $300 pre-inspection fee. Then they paid another $300 for an inspection on the condo they eventually bought.

Putting in an Offer

The Youngs: Proud Homeowners

Once you find a house that you want to make your home, then it’s time to make an offer. And as Young found, that can also get pricey. They lost one of their two bidding wars by a whopping $74,000.

They also found that they had to waive contingencies, such as necessary repairs or testing that they would then later pay for themselves, in order to make themselves look like more attractive buyers. When they got their condo, they sweetened the deal for the sellers even more.

“They sold it more quickly than they’d intended to. We knew that they needed to find another place to live. The wife was expecting and they had a toddler,” Young said. “We essentially did a lease and gave them a month of free rent. That wound up making our offer look better.”

The Youngs are not alone. First-time homebuyers across the country are finding themselves spending more money and making more concessions to buy houses. Dallas, Texas; San Jose, California; Raleigh, North Carolina and Seattle, Washington are all hugely popular markets in 2018, according to Zillow.

Closing Costs

The amount you pay to finalize the purchase of your first home varies by location, the housing price and a number of other variables such as insurance.

Closing costs, on average, add up to two to five percent of the price of the home, according to Mikhitarian, and include fees associated with the mortgage, title and escrow company, as well as pre-payments on homeowner’s insurance and property taxes.

“Closing costs, on average, add up to two to five percent of the price of the home.”

“Working with a great agent and lender can help them understand the process so there aren’t unexpected surprises,” she said.

Magner said she always prepares her clients for the sticker shock of closing costs in her New York City suburb which are driven up higher than average because of property and school taxes in the five digits.

“A house for $350,000 is paying close to $30,000 in closing costs,” Magner said. “In a New York market, you’re paying like 14 months of taxes. It’s prorated, so you’re paying the previous homeowners’ back taxes, then the banks take about six months forward.”

Moving In

Getting all your stuff into your new home and setting it up is one of the most exciting parts of new homeownership. But keep an eye on your spending.

“Once they’ve purchased the home, the costs associated with moving in and getting set up can also be hefty,” Mikhitarian, “especially for buyers who moved from a smaller rental home and have new space to furnish.”

But first, you have to get there. Young and her husband paid movers about $1,200 to move about a mile away within D.C. Magner said to count on about $2,000 for movers if you buy locally and upwards of $5,000 if you are moving out of town.

Once Young was in her condo, they didn’t go nuts buying new furniture, but had fun shopping to make their house a home, spending about $2,500.

“We’ve been slightly more frivolous. We bought an extra armchair for the hell of it in the bedroom,” she said. “And we got a rug for the living room.”

They’ve also had to shell out some cash for things they didn’t expect, like power tools. When they realized the door in their master bathroom didn’t shut properly they were able to borrow a power sander from a friend, but then realized they needed a power drill to replace the HVAC vents.

“Things you don’t think about!” she said.

Upkeep and Maintenance

Once you sign on the dotted line, that house is yours for better or for worse. That means you are on your own when something breaks or when you notice wear and tear that needs fixing.

“Once they’ve settled in their home, there are many hidden costs of homeownership, which can add up to just over $9,000 per year for the typical homeowner,” Mikhitarian said. “Annual maintenance costs like cleaning, lawn care, and HVAC maintenance are typically an additional $3,000 per year.

There are many hidden costs of homeownership, which can add up to just over $9,000 per year for the typical homeowner.

Young said they’ve had a number of maintenance issues pop up in the last year. First, there was a moldy gasket in the washing machine.

“I said, ‘I refuse to wash my clothes in this. That’s disgusting,’” she said. “So replacing the gasket was $319, and I remember that number because it’s just a piece of rubber in a freaking washing machine.”

Then the dryer began destroying their clothing because the drum had developed a gap that was catching the fabric.

“We used our home warranty to have that replaced so that was only $50 to have that done,” she said.

Then they forked over $400 to replace the garbage disposal.

“Our garbage disposal had the most bizarre dead animal smell,” she said, “and it took months to figure out where that smell was coming from.”

They’ve also had to pay to fix a leak in their sprinkler system and they’ve hired a pest control company for the city-dwelling critters that they did not want sharing their condo.

Young is now all settled into her condo and happy that she has a space to call her own. To other first-time homebuyers, she advises research, reasonable expectations and a safety net of about $1,000 in savings to handle the expenses that can and will pop up.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.