Many people work for years to save up for a down payment so they can buy a home. However, there are many other expenses that come with homeownership. 

These costs can surprise buyers, and they must be accounted for in creating a realistic budget for buying a home. Here are 5 costs to budget for when buying a home: 1. Closing Costs. 

1. Down Payment 

The down payment is a lump sum that homebuyers pay upfront when they buy a house. It is often expressed as a percentage of the home price. The rest of the purchase is covered by a mortgage or home loan. Down payments are a great way to show lenders that you have skin in the game, which makes them more likely to approve your loan. They also help reduce the size of your monthly mortgage payments. 

However, it’s not always necessary or wise to use all of your savings for a down payment. Doing so could leave you “house poor,” depleting your emergency fund and limiting your flexibility in the future. So, before you decide on a down payment amount, think carefully about your options. 

2. Closing Costs 

When first-time home buyers consider their budget for homeownership, they often focus on the down payment and monthly mortgage payment. However, there are many other costs of buying a home that must be considered and often underestimated. 

Closing costs are additional fees and taxes that must be paid at the time of purchase, which can add up to thousands of dollars. They include bank-related costs, such as appraisal fees and attorney fees, title costs including transfer tax, and prepaid interest on the loan. They can also include homeowner’s insurance and a home inspection. 

Some closing costs are negotiable, so borrowers should always shop around to find the best deal. Your mortgage lender will provide a detailed list of closing costs on your Loan Estimate. 

3. Property Taxes 

Depending on your location, property taxes will need to be paid in addition to your mortgage payments. These taxes help fund local schools, road upkeep, water and sewer line maintenance, just to name a few municipal services. 

When shopping for homes, property tax rates can be a major selling point. However, it's important to note that the property tax rate will also depend on an estimated assessed value of your home and the local tax laws.

When you apply for a mortgage, the lender will provide you with a loan estimate that will include an estimated property tax figure. But remember, the amount you owe isn't necessarily fixed forever and may increase over time. The best way to stay ahead of your potential property tax increase is to be prepared and know what to expect. 

4. Homeowners Insurance 

Homeowners insurance protects you and your lender from financial loss if the home is destroyed or damaged. You’ll pay for this policy as part of your closing costs. The amount you pay depends on the type and cost of the house, your credit score and other factors. 

Most lenders require homeowners insurance before you can close on the loan. The premium will be listed on the Closing Disclosure you’ll receive three business days before your scheduled closing date. 

If you’re a new homeowner, it’s a good idea to get a professional home inspection. It gives you peace of mind that the home is in good condition and lets you know what repairs might be needed. It also pays to have a professional appraisal, which determines the value of your property and is required before closing on a mortgage. 

5. Maintenance 

Once you’ve walked away from the closing table with the keys in hand, your home ownership expenses aren’t over. You’ll need to budget for annual maintenance costs, which may include lawn care, pest control and other preventative measures as well as any needed repairs (that leaky faucet or squeaky doorknob). You can look into reputable home warranty companies for a recommended article that can explain into detail the benefits of a home warranty. 

A popular rule of thumb is the one percent rule, which suggests homeowners save 1% of their home purchase price each year for maintenance. But that figure can vary depending on the age, location and condition of a home. 

You’ll also need to consider the cost of making any cosmetic changes you’d like to make, such as repainting or upgrading outdated appliances. These can add up quickly, so it’s best to come up with a rough estimate ahead of time.