Buying your first home can be an exciting and daunting time. Your home is probably the most expensive thing you’ll ever own. However, if you are buying your first home, you should be prepared for these 10 hidden and commonly overlooked expenses when establishing your budget.

Published by GolfShire Homes #LivingLifeToATee

Picture this: You are ready to buy your first home and just found the perfect one! The neighborhood is great, the house is charming and the asking price is in your budget. Sounds perfect, right?

However, if you are buying your first home, you should know that the asking price is just the beginning. Your home is probably the most expensive thing you’ll ever own, and that expense goes well beyond the list price on the home.

In addition to the list price of the home, there are other upfront and ongoing expenses that can catch you off guard. In fact, Zillow estimates that, on average, Americans pay about $9,000 a year in extra home ownership costs . That figure can very depending on where you live and could increase significantly if you live in a major U.S. city .

If you’re a first-time buyer, it helps to know what you’re getting into. You should be prepared for these 10 hidden and commonly overlooked expenses when establishing your budget.

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Earnest Money | GolfShire Homes

1. Earnest Money

When making an offer on a home, the sellers will usually ask that the buyer provide earnest money. Earnest money is a sign that you are serious about the offer you just made. It’s a little bit like a security deposit and gives the sellers confidence that you are not going to ghost them after making the initial offer.

Generally, you’ll either get the money back or it’ll go toward the purchase of the home once you’ve officially purchased the house. On the other hand, if the financing falls through due to a problem on your end, you may not receive your earnest money again, depending on how your contract is worded. If you are a first-time home buyer be sure to ask your agent about potential earnest money payments and carefully review and understand how the earnest money contract is structured.

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2. Closing Costs

This is a general term used to describe all of the fees paid at the closing of a real estate transaction. Unfortunately, there are a lot of them, including mortgage origination fees, title insurance, recording fees, surveys, notary fees—the list goes on and on. When planning your budget, first-time home buyers can assume the closing costs will be about 2 to 5 percent of the value of the home you are planning to purchase.

Generally, you should expect to pay all of the closing costs at “closing” (i.e. the final meeting to sign all paperwork and officially take ownership of your new home), along with the down payment on the home. That said, many buyers choose to roll the closing costs into the loan amount. On the downside, this will make your hefty home loan look even more frightening. On the upside, if you roll your closing costs into the loan, you’ll pay less money on the day of the closing.

Many first-time buyers don’t realize they need to factor in closing costs. Be sure to speak with your realtor as these costs can vary market-to-market and lender-to-lender and they can impact your maximum budget by limiting the cash you have on hand for other deposits and payments.

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3. Property Taxes

It’s easy for first-time home buyers to overlook property taxes when budgeting for your first home because—as your realtor or broker will likely point out—property taxes are likely lumped into your monthly mortgage payment.

Usually this money is placed in escrow—that is, you’ll make your monthly payments, and your lender will put some money aside every month in order to pay your property taxes for you.

Still, it would be wise to give property taxes some thought when considering your ongoing budget.

It is possible that during your first year of ownership, you could receive a supplemental property tax bill. This can occur when the county re-assesses your property and values your home for a higher price than you bought it.

And, of course, your property taxes may go up over the years if the value of your home continues to increase, making your monthly mortgage payment higher. Rising property taxes are another factor first-time home buyers may want to consider before purchasing a home.

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4. Homeowner’s Insurance

According to Insurance.com , the national average annual homeowner’s insurance payment is currently $1,244, assuming you have a $200,000 dwelling with a $1,000 deductible and $300,000 liability coverage. That’s a little over $100 a month. Not too scary, perhaps.


But if you live in an area like Florida, where storms drive up insurance premiums, you could pay an average of $3,591 a year for the same house and coverage. That comes to almost $300 a month that you’ll be adding to your monthly mortgage payment. This is definitely a cost you’ll need to mull over if you are buying your first home in a state that’s often thrashed by extreme weather.

On the plus side, your homeowner’s insurance will likely be rolled up in your monthly mortgage payment and paid by your lender to your insurer, just like property taxes. So once you’ve figured out your monthly payments and have added the property taxes and homeowner’s insurance, you can almost forget about this expense. Almost.

Unfortunately, like the cost of everything, your homeowner’s insurance premiums can go up, thus increasing your monthly mortgage payment.


One common misconception is that insurance premiums rise as soon as you file a claim for a significant loss. But this is not necessarily true. Insurance companies don’t consider the claim amount, they’re more focused on how frequent the claims are.

So, if you’ve purchased a fixer-upper with a higher potential for things like small leaks, you may want to budget for a potential rise in your homeowners insurance.

In that sense, it’s important to do your due diligence when shopping for Homeowners Insurance.

ConsumersAdvocate.org recently published a comprehensive guide to finding the right type and level of coverage to safeguard your home and belongings against the unexpected. After over 400 hours of research analyzing more than 20 homeowner’s insurance providers, Consumer Advocate narrowed in on just nine firms which they consider to be the best homeowner’s insurance based on your needs .

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5. Funding The Escrow Account

Most first-time home buyers are unaware that they will be asked to pre-fund their escrow account to a level that will cover their first year’s taxes and insurance. You may also be surprised to learn that most lenders require extra money to remain in the account. This is to help cover higher than estimated insurance and tax expenses in the following year.

So, You may end up paying far more of your homeowner’s insurance and property taxes upfront than you expected.

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6. School Taxes

If you are a first-time home buyer, it is a good idea to check with your real estate agent or mortgage broker about the school district you would be buying into before you make an offer.

It’s not uncommon for a first-time home buyer to be blindsided by the amount of school taxes collected by a local county. Even more so when a home buyer does not even have kids to educate in the local community.

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7. Your Interest Rate

Especially for first-time buyers, a higher credit score can have a significant impact on your overall loan costs. By taking some time to understand your credit before committing to a loan, you can actually improve your credit to a level that will provide you with a lower interest rate. A slightly lower interest rate can save a substantial amount of interest over the life of the home loan.

In other words, if your credit score isn’t too hot, it might pay off to work on it and get the score up. You’ll likely save thousands of dollars over the life of your loan.

It is a good idea for first-time home buyers to receive quotes from multiple mortgage lenders to get the best interest rate possible. While it’s now possible to shop and compare terms over the Internet, finding the right lender for you can still be intimidating, especially for first-time home buyers A recent report from Money.com highlights some of the best mortgage lenders in the industry . The report also helps first-time home buyers become informed, empowered buyers buy explaining the various mortgage types available, rate and terms, and so much more.
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8. Moving Costs

Moving costs are a one-time cost that you’ve likely considered, but if you have not, you should factor it in.

For example, if you’re hiring movers, a same-city move will cost around $1,000. However, a cross-country move will likely top $6,000 for movers alone.

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9. Home Maintenance and Repairs

Home maintenance costs can really catch people off guard, especially for first-time buyers who have not had to deal with maintenance before. Depending on the age of your home, you should expect to spend 1 to 4 percent of your home’s value each year on maintenance and repairs.

As first-time home buyers you will definitely want to save for repairs. The upside here is that ongoing maintenance will maximize the resale value of your new home down the line.

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10. Consider Creature Comforts

There may also be a number of smaller considerations you may not think about until after you move in.

If you’re moving from the world of renting to the world of homeownership for the first time, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup including deposits and monthly costs

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Conclusion: Plan Ahead for These Hidden Costs when Buying your First Home

Yes, all of these costs can add up. Thinking about the hidden fees inherent in buying a home can start to be overwhelming and demoralizing for first-time home buyers.

If you’re nervous about what unseen costs are lurking out there, grab a flashlight and maybe a calculator. You’ll be far better off if you face your financial fears head on, and you don’t let those hidden costs lurk in the shadows.

The best way to prepare for the unknown and unexpected is through research, planning and consulting with your realtor. This starts with budgeting before house hunting and throughout your search.

Look at homes in your budget that need improvements, and then research how much those improvements could cost. Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.

There’s really no limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house, you could be slapped with a much higher home insurance payment, making the house more expensive in the long run.

This is where preparation comes in. Research home insurance and property prices in the areas you’re considering to make more educated decisions before you ever make that first offer.

Clearly define how much you intend to put toward your down payment, and then look at how much cash that leaves for improvements and minor costs, like changing the locks. That way, when you find a house at the high end of your range, you’ll know to walk away if it requires a new washer and dryer or HVAC system upgrade.

Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget—otherwise, you could easily end up being house-poor.

Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into, and a good realtor should be able to do just that. Your realtor should be able to advise you along the process and you search and plan to purchase your first-time home.

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