The Hidden Costs for First Time Home Buyers

House ownership for many first-time buyers in today’s market tends to occur at a later age than in past generations. As of 2025, the median age of first-time homebuyers in America has reached an all-time high of between 38 and 40 years old. After the purchase price and housing cost of your home, there are other costs that could strain your budget. These hidden costs of buying a home often show up before you move in and throughout your first year of ownership. 

Key Takeaways

• Hidden costs of buying a home go way beyond the down payment, including closing costs, inspections, moving costs, utilities, initial setup, and first-year taxes and insurance.
• Ongoing expenses like maintenance and repairs, HOA fees, and mortgage expenses such as Private Mortgage Insurance can add up. 
• Mortgage choice matters, as down payment requirements and loan type affect affordability and long-term costs.

Let’s break down the real, underestimated costs that first time home buyers face so you can plan smarter and step into homeownership with clearer expectations and more financial confidence.

The Down Payment Is Just the Beginning

Once the keys are in hand, a new set of expenses begins to surface, many of which aren’t discussed upfront. This is where the hidden costs of buying a new build home or any home can quickly add up, even for buyers who thought they were well prepared. According to a Bankrate study, the hidden expenses of owning a home now total more than $21,000 per year, on top of mortgage payments. These costs include taxes, insurance, utilities, and other expenses that exist regardless of how new or “move-in ready” a home may be. For first-time buyers, understanding this reality early can make the difference between financial confidence and ongoing budget stress.

Upfront and Closing Costs (At Purchase)

Before you ever move in, a surprising number of fees when buying a house start showing up during the offer and closing stages. 

Earnest Money Deposit

One of the first buying house fees you’ll encounter is earnest money. Earnest money is a good-faith deposit that shows the seller you’re serious about the offer, similar to a security deposit. Some sellers might require a fixed amount such as $5,000 or $10,000 while others might charge a 1-2% fee based on the home's selling price. Generally, you’ll get the money back or it’ll go toward the purchase of the home. On the other hand, if the financing falls through due to a problem on your end, you may not see the money again, depending on how your contract is worded.

Closing Costs

Closing costs can be a surprise expense for some first-time homebuyers. The closing costs can range from 2 to 5% of the cost of the house. This means on that same $200,000 house, you need an additional $4,000 to $10,000. Closing costs cover all of the expenses that happen on the closing day. This is for fees from the lender, title company, credit reports, etc. Some sellers, however, agree to pay the closing costs for the buyers. In some cases, you can get the lender to include the closing costs in the loan terms. You might also agree to a slightly higher mortgage rate and then the lender covers the closing costs. 

Prepaid Expenses

Most people have their mortgage company pay their insurance and taxes. As a matter of fact, this is often required by many lenders. This means that you need to get money into an escrow account for anticipated tax and insurance payments that come due before you have time to build a balance with your payments. This can often mean a few percentage points of the cost of the house needs to be put into escrow to cover those upcoming expenses.

Home Inspection, Surveys, and Specialty Reports

One of the most important upfront steps is paying for a home inspection and any necessary surveys or specialty reports. A standard home inspection usually runs a few hundred dollars depending on size and region. HomeGuide surveys confirm property boundaries and other legal concerns can also add several hundred dollars to this tab. Skipping these evaluations might save cash today, but it can expose you to costly problems down the road if hidden issues go unnoticed. 

Moving Costs

Once a purchase is made, a whole set of up-front costs is also associated with moving into your new dwelling. Moving expenses can cost a great deal depending on distance, size of household, and whether hiring professionals is involved. Even if a move is done on a do-it-yourself basis, there will still be costs associated with truck rental, materials, and maybe even a warehousing charge. Many new home purchasers often underestimate these costs in the final stretch before closing.

Utility Setup

Connecting essential services like electricity, water, gas, internet, and trash pickup isn’t free either. Utility providers commonly require setup or activation fees and, in some cases, security deposits. Additionally, rolling over services from a previous address or establishing new accounts might involve scheduling coordination that adds extra charges during your move-in. These utility setup costs are a small line item compared to others, but they’re almost always due before you flip the lights on for the first time.

Ongoing and Long-Term Costs (After Purchase)

Many first-time buyers focus heavily on upfront expenses, but some of the most impactful charges when buying a house don’t fully reveal themselves until months (or years) after closing. 

Property Taxes

A big source of expenses for homeowners, and something that differs considerably based on the region of residency, is property taxes. The average homeowner in America actually pays about 1 percent or so of a dwelling's assessed worth each year for property taxes, based on data collated by the Tax Foundation. Oftentimes, property taxes are actually folded into a monthly mortgage payment, and so homeowners can find it difficult to accurately gauge how much they are actually paying each year.

Homeowner’s Insurance

Homeowners insurance is a regular expense that, once acquired, is extremely simple to forget about. The annual premiums in the US are on average $2,424 for a $300,000 dwelling, but rates depend on where you are, how high your policy limits are, and how much your house is worth to replace. People moving into high-risk areas, like those that are hurricane-prone, in danger of wildfires, or flooding, will pay far more.

Home Maintenance and Repairs

Maintenance and repair are often the most underestimated aspect of homeownership especially for first-time homeowners who have come from a rental situation. An often-used rule-of-thumb estimate is to allocate between 1-3% of the cost of the house for maintenance each year. This will take into consideration every aspect of maintenance and emergency home repairs.

Utilities and Services Cost

Utility costs for electricity, water, gas, internet services, HVAC system, and even garbage collection, may run from $300 to $600 or even higher a month, depending on home size, usage, and climate. These costs can add up relatively fast. Planning ahead and understanding your home’s energy efficiency can help manage these costs.

HOA Fees and Special Assessments

In the case of residential units that belong to a planned development or condominium, Homeowners Association fees can contribute substantially towards various expenses every month. Such dues include expenses for joint facilities, maintenance of these facilities, among others. There can be occasions when HOAs impose additional charges for various repairs that can range into thousands of dollars. It’s essential for you to consider such expenses in advance.

Mortgage-Related Long-Term Costs (PMI)

For borrowers who make down payments below 20% of the purchase amount, Private Mortgage Insurance (PMI) is usually required. This insurance covers the lender’s risk of default. Again, this cost is the sole burden of the borrower. Even though this insurance can be cancelled if you gain adequate equity in your house, this cost contributes to increased expenses incurred during the initial years after buying the house.

Exploring Loan Requirements and Mortgage Programs

Most first-time buyers cannot afford to pay for a property in cash, which is why mortgages or home loans are so important. Each different loan will have different conditions with regards to how much of a down payment is required, so it is very important to understand what is available for each situation. A down payment will be calculated as a percentage of the purchase price.

Traditional mortgages needed a down payment of at least 20% to avoid the need for Private Mortgage Insurance (PMI). But with modern developments, fortunately, first-time home buyers can opt for a down payment of just 5% with the inclusion of PMI if they choose to do so. For eligible homebuyers, the FHA loan terms include a down payment of just 3.5%, whereas VA and USDA loans often entail no down payment for veterans and rural area homebuyers, respectively.

How First-Time Home Buyers Can Prepare and Protect Themselves

Buying a home for the first time can be a thrilling experience, but at the same time, it also brings certain financial obligations which first-time homebuyers often underestimate. The most important thing is to have complete knowledge about the actual cost of home ownership, which is more than the home purchasing and mortgage costs.

As first time buyers, it is not only important to prepare for the purchase, but also to take the necessary precautions to safeguard oneself, such as getting pre-approved for the mortgage, preparing an emergency fund, and carefully scrutinizing every document before signing. As a buyer, understanding what is involved and what is expected will help you set realistic goals, make well-informed decisions, and prevent small oversights from turning into costly mistakes. With thoughtful preparation, buyers can enjoy their new home while staying in control of their finances.

Is Buying Still Worth It When You Factor Everything In?

Even after accounting for mortgage payments, taxes, insurance, and maintenance, many first-time buyers wonder whether purchasing a home is truly worth it. When considering the costs of owning a home, it’s important to weigh not only the financial outlay but also the long-term benefits, such as building equity, potential appreciation, and the stability of having a place to call your own. The key is being realistic about your budget, factoring in all hidden and ongoing expenses, and choosing a property you can comfortably afford. 

Conclusion: Saving for a House in Your Future

Saving for a house requires planning for the full hidden costs of buying a home. First-time buyers need to carefully consider all upfront and ongoing expenses, from closing fees and inspections to property taxes, insurance, and maintenance. While saving can feel daunting, a well-structured plan and realistic budgeting make homeownership achievable. Planning ahead and understanding these hidden costs ensures that when it’s time to buy, you’re financially ready to make your homeownership dream a reality. Looking for other avenues to invest while you’re saving for a home? Visit our site to learn more.

FAQs: Hidden Costs for First Time Home Buyers

1. How much cash do you really need in buying a house?

The cash needed to buy a house involves more than the down payment alone. A first-time homebuyer needs to set aside for closing costs, prepaid expenses, earnest money, inspections, moving costs, and connecting utilities. It could mean an additional cost of 5 to 10% of the purchase price of the home.

2. What is the most expensive part of owning a home?

The biggest ongoing expenses would be mortgage payments, property taxes, and homeowners insurance. Maintenance and repairs would come next.

3. What are the hidden costs of buying a mobile home?

Mobile homes may come with additional charges for lot rentals, higher insurance costs, setup fees for utilities, and maintenance. While the cost of a mobile home may be less, additional charges can quickly amount to the cost associated with homeownership.

4. Are hidden homeownership costs higher in the first year or over time?

In many instances, the consumer will tend to incur higher expenses within the first year because of charges that are incurred at the point of closing the deal and other aspects such as moving and setup charges that are incurred for the first time.

5. Can first-time buyers negotiate or reduce closing and upfront costs?

Yes. Buyers can sometimes negotiate seller concessions, shop around for lenders with lower fees, and get multiple quotes for inspections, surveys, and moving services. Careful research and negotiation can reduce the upfront financial load significantly.

6. How is Private Mortgage Insurance (PMI) calculated, and what is the fastest way to get rid of it?

The average annual cost of PMI varies from 0.3% to 1.5% of the loan value, depending on the amount of your down payment and credit score. The best way to eliminate the need for PMI is to try to increase to at least a 20% equity level in your home, then contact your lender for cancellation of the insurance.

7. If I buy a newly constructed home, will I still face significant maintenance costs in the first few years?

Even new construction homes can have unexpected issues such as minor plumbing, electrical, or appliance problems. Even though large repairs are not very common during the early years, you should save for maintenance, home warranty, and landscaping, as mentioned, which can add up during the first few years of homeownership.