As my husband and I prepare to buy our first home, we’re coming to terms with how much money we really need to save.
The prices in the Southern California house market are staggering enough, but there are always more hidden expenses that you need to think about than just the cost of the house.
If you’re thinking about buying a house, you definitely want to increase your savings substantially. Will you have enough for 20% down payment? If not, you may have to look into an FHA loan which has lower down payment requirements.
If you haven’t already done so, you may also want to think about lowering your debt as much as possible. Lowering your debt makes you look like a more stable client when a lender is thinking about lending you money.
The bottom line is: if you’re thinking about buying your first home, get prepared to shell out lots of cash. You need cash for your down payment, you need cash to pay down your debt, and you need cash for a lot more things too.
Here are five unexpected expenses for first time homebuyers.
Closing Costs: Most homebuyers are aware that closing costs exist, but these days, closing costs can easily run five figures. And some lenders won’t let you roll that into your loan, meaning you need to have the cash on hand.
Two months’ Rent: Other lenders require that even after you’ve paid your down payment and closing costs, that you still have two months’ rent in cash reserves immediately available. This is to ensure that you won’t be flat broke the minute you move into your house. Depending on the size of your mortgage, this can easily be a few thousand dollars, especially if you live n the southern California area or another high-real estate city.
Property Taxes: In California, property taxes amount to 1% of the home’s sale value annually. However, there are additional taxes that can tack on cost to your annual property taxes. If you live in an area where property taxes are variable, your taxes can easily go up , costing you more over the life of the loan.
Home Insurance: You just bought a new house, you want to protect it don’t you? Well, that’s going to cost you. Some lenders will roll in the cost of property taxes and home insurance into the loan, but it may be a better bet to purchase home insurance separately. Make sure you get several opinions and read the fine print on what your home insurance will actually protect you against.
HOA/Mello Roos: If you live in a newer California community, you may be charged mello roos, which are an additional tax in certain neighborhoods to help build up public spaces, like parks, schools, and libraries. You may also live in a Homeowner’s association, which helps maintain public spaces within the neighborhood like pools, and grassy medians. Some HOA’s even cover the outside of the home, like roofs. HOAs and Mello roos can easily add on several hundred to your monthly mortgage payment.
If you’re thinking about buying a home, make sure to look into all the additional charges of what it will actually cost to buy a home.