2. Don’t Forget Closing Costs
Remember, your monthly mortgage payment and initial down payment aren’t the only costs that you have to shoulder as a buyer. There are also closing costs to consider. These fees account for all of charges incurred during the course of the transaction and cover anything from the cost of inspections, to title insurance, or the cost of retaining an attorney.
Traditionally, these fees will amount to around 1%-2% of the home’s purchase price and will be split evenly between the buyer and the seller. However, in some cases, the seller will agree to take care of the upfront costs and allow the buyer to tack his or her portion onto the mortgage, which means repayment can occur over time.
In either case, it’s still an additional cost to consider as you budget for your new home.
1%-2% of the home’s purchase price may not sound like a lot at first, but it typically ends up amounting to a few thousand dollars. It all adds up.
3. Be Realistic About Renovations
When you’re shopping for a home, buying a home that needs a lot of work can seem like a great idea.
For one thing, properties in need to TLC often come with a much lower – and more attractive – sale price. For another, undertaking these projects offers you the chance to put your own personal stamp on the home. However, be aware that renovations often come with a much bigger price tag than you might think.
If you’re not particularly handy, you’ll likely need to hire professionals to handle both of the work. That alone will inflate the cost. Not to mention that any estimates you get are just that: estimates. Often, extensive renovations will come across an unexpected detail that ends up costing more. When all is said and done, renovations can sometimes end up costing more than just buying a turn-key home in the first place.
To keep yourself from getting in over your head, it’s important to be realistic about the size and scope of renovations that you’re prepared to handle.
Ask yourself: Do you have the funds to start these projects immediately or does it make more sense to find a home that’s livable and renovate over time. Then, search accordingly.
4. Factor In Upkeep & Maintenance Costs
Realistically, settling into your new home is just the start of the costs. As you live in it, you’ll undoubtedly encounter recurring costs for its upkeep that you’ll have to pay.
If your goal is to avoid becoming “house poor”, your best bet is to think long-term and account for these costs from the start.
In this case, you should focus on both annual fees like property records and monthly ones like utilities. Here, the seller is your best resource. He or she should be able to provide you with estimates of these costs to factor into your budget.