Home Buying Hidden Costs

January 12, 2007 7:40 AM

Help me budget for buying our first home.

My fiancee and I are looking into buying a house shortly after we're married this summer. Right now we're thinking something in the 80-100k range. We'll have more than 20% saved for the down payment, but my question is: how much should we save for miscellaneous costs and expenses?

From various online mortgage calculators and our county's property tax estimator, I have a pretty good idea what those monthly costs will be, but I don't know much about:

Insurance
Closing costs (maybe ~$1000 from what I'm seeing?)
Realtor fees
Other costs in buying a home

On the advice of previous askmes, I'll be reading some books and of course I will eventually talk to a realtor, but I'd like some general plan for now.

Also, how much should I budget for the miscellaneous repairs that will no doubt crop up in the first year of home ownership? I know every house is different and will require more or fewer repairs than others, but is there some general guideline or rule of thumb on how much to save for this?

posted by chndrcks to home & garden (17 comments total)

Realtor fees will typically be paid by the seller, so you don't need to worry about them unless you specifically hire a buyer's agent, which is not always a bad idea.

Our closing costs were in the ballpark of your estimate. As far as budgeting for maintenance, the best advice I would give you is make sure you get the best home inspector you can afford. Check references and talk to realtors/builders /contractors for recommendations. If you get somebody who does a good job, you will be aware of what the problems with your home are and what problems are likely to pop up, giving you the ability to not only build those things into the final price you pay for the home, but also for budgeting purposes.
posted by jtfowl0 at 7:52 AM on January 12, 2007

Our first-year home-repair costs were nil, as our home was offered with a warranty through the seller's realtor, which was a nice bonus.
posted by mr_crash_davis at 8:00 AM on January 12, 2007

Our first (current) house is right in you 80-100k range.

Insurance -- ours it $700 per year with a very high deductible

Closing costs -- we came in closer to $1500

Realtor fees -- generally paid by the seller (the realtor(s) involved in the transaction average about 6% of the cost of the house - if more than one realtor they split that)

Other costs in buying a home -- to cover the expenses we expected in our 50 year old home we got the seller to throw in a home warranty (AHS they're decent, nothing special). It covered replacing the water heater, replacing the fridge when it went out, fixing a couple of plumbing problems...in short for the 2 years/$750 we paid them we've easily saved $1,000 above that.
posted by iurodivii at 8:02 AM on January 12, 2007

Mrs. M.C. Lo-Carb! and I bought a house in a very slightly higher price range a couple years ago. My advice would be to have about $2000 in cash on hand for whatever.

If you have the 20%, you'll not have to pay private mortgage insurance (PMI), so your monthly payments (principal, interest, tax and insurance, referred to as PITI) for a standard 30-year fixed will probably be about $800 (plus or minus a little, depending on the tax difference in your location is, and variance in interest rate). Once you select an insurer, your mortgage company will take care of making the insurance and tax payments. Our closing costs were more like $500, but YMMV, so having a grand or two on hand won't hurt. We had about $2,000 budgeted for the initial costs, but since they turned out to be a lot less than we had expected, we just saved some and used the rest for a bit of new furniture.

The inspection should bring up any needed repairs, and in most cases, the seller will have to take care of those as part of the deal. He/she will likely deduct the repair payments from their profit on the house at closing time, and the real estate agent will take care of all of that. In our case, the furnace turned out to have a cracked firebox, so the seller had to replace the entire thing at a cost, to him, of about $1500. We went easy on some of the other stuff because of that, such as the fact that only a couple outlets in our 60-year-old house are grounded. But if the repairs are just little things, you'll probably be able to negotiate repairing all of them. Realtor fees are also tacked into the closing costs, so you won't have to worry about them.

You'll also have to put up earnest money with your offer, probably $500 to $1000, and that money will be applied to your closing costs.

We got all the (well used!) appliances that were in the house, you might have to have some money set aside for a refrigerator, stove, etc.

Lots of people told us to have shitloads of money in the bank in case the roof caves in, but we didn't worry too much about that. You get at least a one-year warranty on everything anyway, and as long as you have a good inspector, you can avoid pitfalls like termites or bad plumbing.

The only other advice I might offer is to expect the whole process to be insanely complicated and intimidating. But it's also fun. Look at lots of houses!
posted by M.C. Lo-Carb! at 8:03 AM on January 12, 2007

Closing costs vary by state and municipality, and are generally tied to the selling price. Our credit was not great, so we had to pay up-front interest of 1.5% of the principal (this is what people mean by "points") at closing. That was about $2000 on top of other fees. On the face of it, that looks like a raw deal, but that $2000 got us a much better rate.

And yes, do get the house inspected by a professional, licensed, bonded inspector. You will get an idea of what needs to be done immediately, and what things should be done eventually. If something big is needed, like a new roof, or a new main waste line (ugh! just had that done), you should use that for leverage in negotiating the price of the house.

Then there's the matter of aesthetics - you are going to want to change a few things despite the fact that they are doing their jobs perfectly well.

Having said all that, I will give you a ballpark figure: For the modestly priced house you seek, plan on spending $2000 to $3000. $5000 would be nice. This assumes, of course, you are not buying a shell, you are not totally re-wiring, re-plumbing, etc.
posted by Mister_A at 8:03 AM on January 12, 2007

I don't have any answers, I'm just curious (and jealous) of where you can buy a home for 80-100k. *sigh*.
posted by cgg at 8:10 AM on January 12, 2007

Just to clarify: That's $2000-$3000 for repairs and upgrades, on top of your closing costs.

Also: if you're handy, don't rule out buying a house "as--is". We did that, knowing (because of inspection) that we were going to have to fix a number of things, and it allowed us to scoop up our house at about $30-40k below market value.
posted by Mister_A at 8:10 AM on January 12, 2007

I think our closing costs were about 3% of the house price, give or take a bit. Some mortgage arrangements will allow you roll these costs into the mortgage, so you aren't out of pocket for those costs, which costs more in the long run, but allows you to keep your savings for settling in and emergencies.

Maintenance: I would budget for a normal worst case scenario, which would be something like needing to replace the roof and the furnace at the same time. (Yes, worse things happen, like big foundation problems, but a lot of those things can be put off or dealt with over time. Roof repairs and furnaces not working can't be delayed, at least in the winter.) How much those cost will depend on your house --- big house, steep roof, expensive materials will be different than a flatter roof on a small house. But you can get ballpark numbers for those two items, and as long as you either have that in savings (ideally) or that much available in credit (not ideal, but ok), you are good to go. I don't think having a home warranty is a substitute for being able to afford these items, because there may be an exception, or the warranty may expire the day before the roof starts leaking.

The first year, you will probably spend more, making the house "yours" -- repainting a room or two, buying furniture, etc. This should not come out of the emergency repair budget. Also, don't forget that you may need to buy a lawnmower, gas can, weed wacker, shovel, hoe, tools, etc --- all of which are cheap individually, but if you have to buy them all at once it is really expensive. You may already own these, or your brother in law may live down the street and you can borrow from him temporarily. Or, you can pay a landscaping service. But one way or another there are a lot of maintenance jobs you have to do as a homeowner that require tools and equipment --- you either take the time and money to learn the skills and do it yourself, or you budget the money to pay someone to do it.

For insurance, start calling around and getting quotes. Start with whomever you get car insurance from, and when you call around ask about discounts for bundling car and house insurance from the same company. (We get a pretty good discount for this.) Your city or county tax office can tell you how much your property taxes will likely be. Our tax and insurance payments are bundled into our mortgage payments, making budgeting easy.
posted by Forktine at 8:39 AM on January 12, 2007

What state are you in? I was able to find an insurance rate survey by my state's insurance commissioner by going online, and it was very helpful in givnig me an idea of what insurance costs might be.
posted by croutonsupafreak at 8:48 AM on January 12, 2007

Do you have a lawnmower? How about a leaf blower? etc. Budget a few grand for little things like this plus some maintenance in the first few months. If you are like most people you will have a few unfurnished, or at least spartanly furnished rooms for a few years. Plan on several grand more if you can not stomach that.

We dropped about $10 to $12K in the first six months, but most of that we knew about - new roof, new furnace, new AC and some wiring. It forced us to pay PMI for a few years. I would avoid that if possible, it's just money down the drain. Don't use the home inspector or a lawyer recommended by your realtor, they are chosen to not cause trouble with transactions. A good home inspection will let you know what you are facing for repairs. A fixer upper can save you substantial money, but funding the repairs can be a challenge. A loan or gift from parents helps many people here.
posted by caddis at 8:53 AM on January 12, 2007

In Toronto I had to pay a land transfer tax, which was some percentage of the purchase price (this came out to $1500 or so I think), Closing/Lawyer fees were another $1500 or so. The insurance on my condo is a couple hundred a year, if that.
posted by chunking express at 8:55 AM on January 12, 2007

Budget for the home inspection(s), which you may end up doing on more than 1 house. Don't skimp on this.

Visit your credit union or bank, and ask them to help you estimate the cost of purchasing a house. They ill make money if you choose the finance through them, so they should be delighted to help.

Mortgages are paid "in arrears" and this affects the 1st payment. At closing, you have to pay pre-paid interest, and it will vary according to the closing date. But then you don't pay until the 1st of the month after the next month, i.e., close today, Jan. 12, and your 1st mortgage payment is due Mar. 1st. So you get a nice breather. Also keep in mind that you may be due a refund of a security deposit on a rental. Both of these items covered my move-in costs.
posted by theora55 at 9:01 AM on January 12, 2007

The general rule of thumb we use for budgeting our home repairs falls under our "Housing Expenses" budget of which we allow 35% of our net income. This 35% covers our mortgage, insurance, taxes, gas, electric, garbage, sewar, water, repairs, upgrades, and general upkeep and maintenance. Anything under 35% each month is saved for a future home expense such as those on my list below or the new lawn edger my husband wants & the new oven I want, plus home emergencies such as a pipe bursting or roof leak.

Regarding general costs for your 1st year (that haven't already been mentioned and some you will want to do as soon as you move in) you might plan for:

*Heating & Cooling systems serviced by a professional (cleaning & inspection every year for oil, 2 years for gas; every 2-3 years for cooling).
*Monthly replacement of air filters.
*Fireplace inspection & cleaning by a professional.
*Possible lawn & garden services & supplies (lawn mower, fertilizers, weed killers, aerating, etc.).
*Possible pest control.
*Possible replacement of smoke/fire/carbon monoxide. detectors & fire extinguishers.
*Yearly carpet & rug cleaning.
*Caulking/weatherstripping windows & doors as needed.
*Plus the general upkeep of exterior siding/paint, sidewalk/driveway, gutters, fence, etc.

If you can afford it and plan to stay in your home, I strongly suggest a 15 year mortgage versus a 30 year. You'll save tens of thousands of dollars and your payment should only be around a 100 extra.
posted by LadyBonita at 9:19 AM on January 12, 2007 [2 favorites]

Lots of good advice here already.

If you buy a house with issues that come up on inspection, there are two ways to handle this:
1. Seller fixes it (the seller doesn't necessarily have an incentive to do the best job)
2. Seller reduces price by estimated repair cost

In the latter scenario, be prepared for actual repair costs to be several times higher than the estimate.

Those home warranties sound like a great idea, but in my experience are more trouble than they're worth, since you need to go through the insurer to get a repairman. This can slow the process down to the point where it's worth it to pay out of pocket anyhow.

Don't forget your property taxes in your calculations. They're pretty steep where I live (TX), and if you put 20% down, they're not automatically escrowed with your monthly mortgate payments.

As paranoid as it sounds, it might be worth it to have more than one inspector go through the place if it is anything short of rock-solid. Different inspectors will notice different things, and will have different opinions as to how to rectify the same things.
posted by adamrice at 9:24 AM on January 12, 2007

Don't forget things like:

* Security deposits to get gas, electric, water, sewer, phone, cable.
* Misc. home furnishing items you didn't need at your old place or that were lost/damaged in the move (coat rack, lamp, shower curtain, etc.).
* Paint. No seriously, plan on painting every room and be pleasantly surprised if you are wrong.
* Movers.
* Basic toolset and one of those "how to fix everything" books they sell at places like Home Depot and Lowes.
* Appliances. Even if they are included, count on one failing within a year.

Particularly since this is your first house, double if you are not "handy", make the seller kick in a home warranty.
posted by ilsa at 10:13 AM on January 12, 2007

Home warranties are getting more and more common. They're usually only about $300 for a year. We used ours a bunch in the first year (Aon was the company) and liked it so much we renewed it for the second year. It covered things like electrical problems, broken washing machine, etc. It should be trivial to ask the seller to include one, or failing that, buy it yourself. And I'm a person who usually thinks warranties are a huge ripoff.
posted by selfmedicating at 11:41 AM on January 12, 2007

This is exactly the reason to get hooked up an agent, they can give you an idea how much closing costs are but there are other variables you could look at, like rolling costs into the purchase price of the house or ??? Who knows -- get an expert!
posted by thilmony at 12:20 PM on January 12, 2007