As my spouse and I chart our course towards owning our first home, we realize the extent of savings necessary. The astonishing real estate prices in Southern California represent just one aspect. Countless hidden costs are also involved.
If you are considering a home purchase, it’s crucial to significantly bolster your savings. Will you be able to cover a 20% down payment? If not, an FHA loan with lenient downpayment requirements might be suitable. If you haven’t tackled debt reduction yet, it’s time. Less debt paints a reassuring picture for potential lenders.
The takeaway is simple: home buying demands substantial financial preparation. Your down payment, outstanding loans, and various miscellaneous expenses will all require ready cash.
Here are five overlooked expenditures for first-time homebuyers:
1) Closing Costs: Most buyers are aware of these costs. But they can now easily reach into the tens of thousands, and some lenders don’t allow it to be included in your loan, requiring immediate payment.
2) Reserve Fund: Some lenders insist on you having two months’ rent as an easily accessible emergency fund, even after paying your down payment and closing costs. This ensures you’re not financially drained the moment you move in which, considering Southern California’s high property prices, amounts to a hefty sum.
3) Property Taxes: For Californians, the annual property tax is 1% of the home’s sale value. However, additional variable taxes could escalate your annual tax bill affecting your overall loan repayment.
4) Home Insurance: Protecting your newly acquired asset is obviously desirable, but it comes at a cost. While some lenders can roll it up with your loan and property taxes, it might be wiser to investigate and compare independent insurance options.
5) HOA/Mello Roos: For residents of new Californian communities, Mello Roos taxes may apply. These additional levies boost public amenities such as parks, schools, and libraries. Another cost could be homeowners’ association fees, which look after shared spaces in the neighborhood. These fees can amplify your monthly mortgage payments significantly.
