Last Updated on May 8, 2023 by Eric Jeanette
First Time Home Buyer Closing Cost Guide
First time home buyers should prepare themselves for the costs associated with buying a home. There are closing costs and some costs related to owning a home that you will need to be ready for after closing.
First time home buyer closing costs can be 2%-4% of the purchase price depending upon the loan program and the purchase price.
First Time Home Buyer Closing costs
First-time home buyer closing costs are divided into three specific categories:
- Lender closing costs
- Third-party closing costs
- Tax and Insurance Escrows
Understanding the difference between these closing costs and knowing what can and cannot be negotiated is extremely important. These three types of closing costs combined are 2-4% of the home’s purchase price.
1.Lender Closing Costs
The most common lender closing costs are application fees, origination fees, underwriting fees, processing fees, and discount points.
You can negotiate these with your lender. However, it could result in a higher interest rate if the lender agrees to waive these fees.
2.Third-Party Closing Costs
Third-party closing costs are things the lender does not control. These costs include the appraisal, inspection, title search, title insurance, recording fees, attorney fees, wire fees, credit reports, and flood certification fees.
It may be possible to shop around to lower third-party fees. For example, you can find an inspector, title company, and attorney on your own. You may be able to save a few hundred dollars by shopping for these yourself.
3.Escrow Closing Costs
Your lender may require you to escrow the property taxes and that is usually three months’ of your tax bill paid at closing. The lender will hold this in reserve while you continue to include taxes as part of your monthly mortgage payment.
You will also have to pay your first year’s homeowners insurance premium before closing. The upfront premium is paid to your insurance company (not the lender), and you will need to provide the lender with a copy of the binder and the receipt.
Some variables will impact how much your closing costs will be. As a first time home buyer, you have control over some of those costs.
The first variable is the day of the month that you close. The earlier in the month that you close on the mortgage, the more you will pay in prepaid interest. The savings at closing can be significant if you close at the end of the month.
Another variable is the tax rate in the town where you shop for a home. Homes with high property taxes mean you will pay more tax escrows at closing. Similar to prepaid interest, the difference can be thousands of dollars at closing.
Please read this helpful article on How to Lower FHA Closing Costs
First Time Home Buyer Moving Costs
If you are buying your first home far from where you live now, you may have costs related to moving. These costs need to be factored into what you will need to purchase your first home.
The fact that you do not own a home now means you may not have accumulated too many things and hopefully it will not take too much for you to move.
If you are moving to another state and have to take your furniture, you may need to search for a moving company or rent a U-Haul truck. The cost here could be anywhere from a few hundred dollars to move yourself to a few thousand to have a company do it for you.
First Time Home Buyer Repairs
When you move into your first home, it will likely need some minor repairs if the house is not new. Maybe it is caulking around the bathtub or giving the home a fresh coat of paint.
You can save a significant amount of money by handling these items yourself. However, if you are not handy and need to hire someone, then you could be looking at a few thousand dollars depending upon the extent of the repairs.
A tip is to negotiate a credit from the seller for some of the items that need to be taken care of. Some of these will be identified during the inspection. Ask for a credit at closing, not a price reduction because it will mean you need less money at closing.
Maintenance Costs and HOA
Now that you are a homeowner, you will need essential maintenance and upkeep of your home. This will also cost money and those costs begin the moment you move in.
If you live in a home or condo that has an HOA (Homeowner’s Association), there will be a monthly fee associated with general grounds maintenance. However, if there is no HOA, all of the maintenance costs are on your shoulders.
If you buy the home in warmer months, you may need a lawn mower to cut the grass soon after moving in. You will also need tools to perform basic maintenance around the home. These tools include screwdrivers, a socket set, etc.
Your HOA could be anywhere from $150-$400 per month. Otherwise, you may need to spend a few hundred on the tools needed to do the maintenance yourself.
Utilities Costs for First Time Home Buyers
Not factored into your mortgage pre-approval are estimated costs for utilities. This means you are responsible for electric, water, sewer, cable tv and internet. The cost for all of these items combined could exceed $500 per month if you are not careful.
When you finally move into your first home, you will likely need to furnish part or all of the home. At minimum, you will need a bed, a kitchen table, and maybe a couch to sit on plus a TV.
To fully furnish a home, you can spend thousands. However, if you want to get some basic furniture in a few rooms, you can look at purchasing some used items at a much lower cost.
Suggest budgeting about $2500 for furnishings just to get yourself started.
Are Closing Costs Different for First Time Home Buyers?
Closing costs are the same for first time home buyers as they would be if you were buying a home for the second time. What you may find are assistance programs that will provide funding for first time home buyers only.
Are Closing Costs Included in the Mortgage?
Closing costs are not included in the mortgage when you are purchasing a home. However, closing costs can be rolled into the loan when you are refinancing.
How Much Do Most First Time Home Buyers Put Down?
On average, most first time home buyers put down roughly 7% on the purchase of a home. The most common first time home buyer mortgage is an FHA loan where the down payment is only 3.5%. However, some first time home buyers opt for a conventional loan and come to the closing table with a larger down payment.
First time home buyer closing costs can be significant if you are unable to find help to cover those costs. They can be as much as 2%-4% of the purchase price and will be based upon the loan program and purchase price. You must also consider costs associated with your initial move into your home when planning your budget.
Other Helpful Articles
FHA Closing Costs Assistance – see what may be available to you to help with closing costs.
FHA Down Payment Assistance – this will provide you with an overview of what down payment assistance programs may be available to you.