M1 Blog

The Hidden Costs of Buying a Home

M1 Team
M1 Team October 4, 2024
Hidden costs of buying a home

Purchasing a home is often considered a milestone in one’s financial journey. While the benefits of home ownership are well-known, many first-time buyers are caught off guard by the hidden costs associated with buying a house. In this post, we’ll explore these often-overlooked expenses and discuss smart strategies to prepare for them.

1. Down Payment: More Than Just 20%

A 20% down payment is often considered a beneficial strategy to potentially avoid private mortgage insurance (PMI). However, even if you’re prepared for this significant expense, there are additional costs to consider:

  • Earnest money deposit
  • Potential bidding wars in competitive markets

Pro tip: Consider keeping your down payment funds in a high-yield account. This way, your money can grow while you’re house hunting, giving you a little extra cushion for unexpected costs.

2. Closing Costs: The Final Hurdle

Closing costs typically range from 2% to 5% of the home’s purchase price. These may include:

  • Appraisal fees
  • Title insurance
  • Attorney fees
  • Loan origination fees

Smart move: Some lenders offer the option to roll closing costs into your mortgage. While this increases your loan amount, it can help if you’re short on upfront cash. Alternatively, a flexible line of credit could provide the necessary funds without impacting your mortgage terms.

3. Home Inspections: An Essential Investment

While not always required, home inspections are crucial for identifying potential issues. Costs may include:

  • General home inspection
  • Pest inspection
  • Radon testing
  • Sewer line inspection

Insider advice: Don’t skimp on inspections. Spending a few hundred dollars now could potentially help in avoiding future repair costs.

4. Property Taxes and Insurance: Ongoing Expenses

These costs are often overlooked but can significantly impact your monthly budget:

  • Property taxes (vary by location)
  • Homeowners insurance
  • Possible HOA fees

Financial strategy: Consider setting up a separate savings account for these expenses. Some high-yield accounts offer the ability to create sub-accounts, making it easier to organize and allocate funds for different purposes.

5. Moving and Initial Setup Costs

Don’t forget about the expenses associated with actually moving into your new home:

  • Moving company fees or truck rental
  • New furniture and appliances
  • Utility setup fees
  • Immediate repairs or renovations

Budget tip: Having a flexible source of funds, such as a low-interest line of credit or margin loan, can help cover these initial costs without derailing your budget.

6. Maintenance and Repairs: The Long-Term Commitment

Home ownership comes with ongoing maintenance costs:

  • Regular upkeep (lawn care, HVAC servicing, etc.)
  • Unexpected repairs
  • Future renovations

Something to Consider: Financial advisors often suggest budgeting 1% of your home’s value annually for maintenance and repairs. A high-yield account can be an excellent place to store this “home emergency fund.”

Conclusion: Be Prepared, Not Surprised

While these hidden costs of buying a home may seem daunting, proper preparation can make the home-buying process much smoother. By understanding and planning for these expenses, you can be better prepared for the journey towards home ownership.

Remember, financial tools like high-yield accounts for building your down payment and emergency funds, or margin loans for managing short-term costs, can be valuable allies in your home-buying journey. Learn more about the M1 High-Yield Cash Account and M1 Margin Investing here. With the right strategy and resources, you’ll be better prepared to understand the potential costs associated with buying a home.

There are material differences between High Yield Cash accounts and High yield Savings Accounts, to learn about these differences please go to https://m1.com/earn/cash-vs-savings-accounts/

Disclosures: 

M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Past performance does not guarantee future performance. 

Brokerage accounts on the M1 platform are either fully disclosed to APEX Clearing or cleared through M1 Finance LLC. Please look at your account statement to determine how your account is cleared. 

All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future performance. Using margin can add to these risks. Users utilizing APEX cleared margin accounts should review the APEX margin account risk disclosure before borrowing. Users utilizing M1 cleared margin accounts should review theM1 margin account risk disclosure before borrowing. M1 Margin Loans are available on margin accounts with at least $2,000 invested per account. Not available for Retirement or Custodial accounts. Margin rates may vary. 

Brokerage products and services are offered by M1 Finance LLC, MemberFINRA /SIPC, and a wholly owned subsidiary of M1 Holdings, Inc. 

M1 is not a bank and M1 High-Yield Cash Accounts are not a checking or savings account. M1 High-Yield Cash Accounts are an investment product offered by M1 Finance, LLC, an SEC registered broker-dealer, Member FINRA / SIPC. The purpose of High-Yield Cash Accounts are to earn interest on securities not actively invested. An open M1 Investment account is required to participate in the M1 High-Yield Cash Account.

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