Many first-time home buyers have questions about purchasing a home and the process involved. For those wondering about how much they can afford, there are a number of fees associated with closing costs that may not come to mind.
To make sure you have the full amount needed, we've broken down five of the most important upfront costs below. Being aware of these fees will ensure your home buying experience is a smooth one.
1. Down Payments
When purchasing a new home, you most likely know that a down payment will be required, but exactly how much should you plan forhow much should you plan for?
In order to get a mortgage, you will need a down payment of at least 5% of the purchase price. However, anything less that 20% means that you will also have to pay for mortgage loan insurance, which would protect the lender if you were to default on your payments.
If you can afford to, it may be better for to put more money down up front, rather than incur the extra costs associated with mortgage loan insurance.
2. Home Insurance
When you purchase a home, you are required to have homeowners' insurance to cover the cost of any damage that could occur to your property. This is required by most lenders when you are approved for a loan and it can be included in the monthly mortgage.
The insurance can also provide liability coverage for any accidents that may occur in your home or on your property. The cost of home insurance usually depends on the area in which the property is located and its value. Another factor that affects the cost of your insurance is the deductible that you choose. Higher deductibles usually have lower annual fees, while a plan with a low deductible could cost you more money up front.
3. Homeowners' Association Fees
You will be informed in advance if you are required to pay any homeowners' association (HOA) fees with the new property you purchase. HOA fees are usually paid monthly and could be anywhere from under $100 a month to over $300. These fees go towards maintaining your neighbourhood and could include things such landscaping, snow removal, pool maintenance etc. If you've purchased a condo in a building, your HOA fees could increase if any kind of major repair is required, such as replacing a roof or elevator.
The HOA also establishes rules for the homeowners with the purpose of maintaining the quality and aesthetic of the area. This sometimes limits the homeowner when it comes to the way the outside of their home looks, or how many pets they are allowed to have.
4. Moving Fees
Depending on the way you plan your move and how far you're going, moving can cost you hundreds to thousands of dollars. Make sure you budget for each expense that comes with moving (truck rental, gas, hiring movers etc). If you want your move to be as easy as possible you can hire a professional moving company that will pack up your belongings, move them and unload everything too!
If you prefer to save money in this area, you can plan to handle your move with the help of some friends and family. You may also want to look into the option of loading the items into a shipping pod which can then be picked up and transported by a moving company.
5. Upgrades and Decor
Often when you move to a new property there are a number of upgrades that you want to complete in order to customize the space and really make it your own. This could mean installing a security system, purchasing window treatments, updating lights, and changing out paint colours.
A lot of people who purchase a home don’t consider the costs of any outdoor furniture they may need. If your property includes a deck or patio, it can look really bare without any kind of patio set or BBQ.
If this is your first home and you were renting before, there’s a possibility you may need to spend several hundred to thousands of dollars on appliances if they aren’t already included. If this is the case, shop around and compare prices to make sure you get the best deal possible.
Buying a home comes with lots of extra expenses above the cost of the property itself. It’s important to plan ahead for these costs so there are no financial surprises and you can spend more energy focusing on the fun parts, like settling into your new home!
Want to know more about home buying costs? Check out our post: "What Are Some of the Hidden Costs of Buying a New Home?" to learn more.
