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The True Cost of Homeownership

Posted by Michael J. O'Connor | CWS®, Vice President Investments
April 11, 2018

the real cost of home ownershipThe act of buying a first home is often framed as a wonderful, life-changing experience. And to be sure, it almost always is. But it’s the process of buying the home that’s not always so picture-perfect, and in fact usually comes with an odd set of juxtaposed emotions: joy and frustration, surprise and shock, relief and anxiety, a feeling of stability but then also a feeling of uncertainty. In short, it’s somewhat of a wild ride for first-time homebuyers!

Much of the ‘negative’ side of the emotion equation stems from a common source: unexpected costs. Many first-time homebuyers simply aren’t aware of the extensive list of fees and costs associated with buying a home, which is why a recent survey by TD Bank found that nearly 50% of homebuyers incurred more than $2,000 in unexpected charges during the home buying process. 10% of those surveyed said they spent at least $5,000 more than expected.[1]

The median cost of buying a home in America is already steep as-is, so encountering a slew of unexpected costs can make it seem like an even steeper mountain to climb.

The Median Cost of a Home in America is Greater than $320,000

FRED Median Sales Price for New Houses Sold in the United States

Planning for the Unexpected

Perhaps the best way to avoid the shock of unexpected costs is to map them out beforehand. Let’s start with closing costs. Here you’ll need to budget for an array of fees, like appraisal, home inspection, document preparation, title, underwriting and origination, and other lender administrative fees. These fees/closing costs could amount to between 2% and 5% of the home's purchase price, which for a $1 million home could mean forking over $50,000.[2] Not exactly pocket change.

Fortunately, new regulations passed recently require lenders to be more transparent about these fees, and if you read the documents carefully and ask tons of questions, you should have a clear understanding of the costs and perhaps even be able to negotiate some of them down or have them removed completely. 

Some general questions that you should be prepared to ask your mortgage lender could include:

  1. What is the interest rate you are offering, and how did you arrive at it?
  2. Can you estimate and explain your fees?
  3. Are you going to hold this loan or sell it?
  4. Do you sell my information?
  5. What is the interest rate you are offering, and how did you arrive at it?
  6. How do I know this is the best rate?
  7. How will the rate change over the life of the loan?
  8. Are you locking in my rate? For how long? What does the lock cost me?
  9. Do I need to pay private mortgage insurance (PMI)?
  10. Are there any prepayment penalties on this loan?
  11. Is there anything I shouldn’t do before my loan closes?
  12. Who will service my loan?
  13. Do I have to escrow taxes and insurance?
  14. Do you have an origination fee?
  15. What other costs will I pay at closing?
  16. How – and how often – will I be updated on the loan’s progress?
  17. How long until my loan closes?
  18. What might hold up the approval of my loan?

Other potential costs that you should consider are that quite a few lenders require homebuyers to pay a year's taxes upfront. If some of these taxes or other costs like HOA dues were already paid by the seller, you may have to pay the prorated amount for the rest of the year.

And then there’s the actual act of moving into the new home, which can involve several sneaky costs that tend to add up. Think deposits or setup fees for getting utilities started, homeowner’s insurance, renovation costs, maintenance, new furniture, and moving expenses. Experienced realtors say you should expect something to break or need replacing within the first year.

Costs Can Add Up Fast – But Don’t Let that Discourage You!

With the right plan, a first-time homebuyer can enter the market with confidence and go through the home buying process with very few surprises. And that’s where WrapManager comes in.

We can help you analyze the costs of purchasing a first home, as well as work to formulate a plan for how to save and prepare for the financial costs when the time comes. If you think you’re financially ready but want to run the numbers to understand the financial impact, we can help with that too. Get started today by reaching out to one of our wealth managers at 1-800-541-7774 or by sending an email to wealth@wrapmanager.com.



[1] CNN Money
[2] Dave Ramsey


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