The Real Cost of Moving From Renting to Buying a Home: What to Budget for Beyond the Down Payment

When most renters start thinking about buying their first home, they focus on the obvious expenses: the down payment, closing costs, and what their monthly mortgage payment will be.

Those are all important, but they're only part of the picture.

Over the last 20 years, I've found that it's usually the unexpected expenses that catch buyers off guard, not because they're huge, but because no one told them to plan for them.

The good news? Almost all of these costs are predictable if you know what to look for.

Here are a few things I always encourage my buyers to think about before they make the jump from renting to owning.

Buyers know they'll need a down payment and closing costs, but there are a few other expenses that come up during the escrow process.

You also need to keep these things in mind:

• Your earnest money deposit: this goes toward your down payment, but is still cash you'll need to have on hand.
• A home inspection, and maybe other inspections depending on the age of the home, etc.
• An appraisal, if you have a loan.
• Closing costs

Don't let that list overwhelm you. Your lender and your real estate agent should walk you through every one of these expenses long before they become due. My goal is that my clients never have a surprise during escrow.

Take a look at your lease before you start shopping

Before you start touring homes, pull out your lease agreement.

Ask yourself:

• How much notice do I have to give?
• Is there an early termination fee?
• Can I switch to month-to-month if I need a little flexibility?
• Will I get my security deposit back?

Knowing the answers now can save you money, and a lot of stress, later. Your real estate agent should certainly bring this up with you, but it's good to get a handle on it before you even start planning.

Don't Underestimate Moving Costs

Moving has a funny way of becoming more expensive than you expected.

It's not just hiring movers. It's boxes, packing supplies, utility transfers, cleaning, maybe a storage unit, and sometimes even taking a day or two off work.

None of those expenses seem like a big deal on their own, but together they can add up quickly. I always tell buyers to build a little extra into their budget so moving day is exciting, not stressful.

Your Closing Date and Your Lease May Not Match

One of the biggest misconceptions I hear is, "We'll just move out of our rental the day we close."

Sometimes that's exactly how it works.

Sometimes it isn't.

Closings can be delayed for reasons completely outside anyone's control, an appraisal, underwriting, title work, insurance requirements, or repairs that need to be completed before closing.

If your lease ends before your purchase closes, you could end up paying for a month-to-month rental, temporary housing, storage, or even moving twice.

The good news is that there are solutions. Sometimes a landlord will extend your lease for a short period, and in some situations we can negotiate a rent-back agreement with the seller. Every transaction is different, but the earlier we talk about timing, the more options we usually have.

Plan for Those First Few Weeks

Almost every new homeowner spends more money during the first month than they expected.

Maybe it's new locks, paint, window coverings, tools, a lawn mower, shelving, or furniture.

None of these purchases are necessarily emergencies, but they're things you'll probably want sooner rather than later.

Having a little money set aside for those first few weeks will make settling into your new home a lot more enjoyable.

Don't Empty Your Savings Account

This is probably one of the biggest pieces of advice I give first-time buyers.

Just because you're approved to spend every dollar doesn't mean you should.

Once you own a home, you're responsible for the maintenance. Water heaters fail. Appliances quit working. Things happen. Your real estate agent should negotiate a Home Warranty for you, for at least the first year, but you will still have expenses. 

Having a financial cushion after closing gives you peace of mind and allows you to enjoy being a homeowner instead of worrying every time something unexpected comes up.

A Little Planning Makes a Big Difference

Buying your first home should be exciting, not stressful.

The buyers who have the smoothest experience aren't necessarily the ones with the biggest budgets. They're the ones who know what to expect and have a plan before they get there.

That's why I spend so much time preparing my clients before we ever write an offer. When you know what's coming, you can make confident decisions instead of reacting to surprises.

If you're thinking about buying your first home and aren't sure where to start, I'd be happy to walk you through the process. Even if you're still six months or a year away, putting together a game plan now can make all the difference when you're ready.