Buying a Home: Explore These Hidden Costs
October 12, 2020 Author: Tess Downing, MBA, CFP®, Complete View Financial
Buying a home is exciting – and stressful. When it comes to purchasing your new home, it’s important to be realistic about what you can expect to pay. Beyond mortgage and insurance, there are additional costs all new homeowners need to factor in to their buying budget.
We’ve gathered up 10 hidden costs we believe every new homebuyer should be aware of when it comes to purchasing their next home.
Cost #1: Property Taxes
Some lenders may roll your property taxes in with your mortgage, meaning they can be easy to forget about. But, you still need to account for them in your budget. Property taxes may be of little concern in some areas, and a huge expense in others. Do some digging into what you can expect to pay when moving to a new area – as this could be a deciding factor when relocating.
In some cases, property owners may be hit with a supplemental property tax bill at the end of their first year of ownership. This would happen if the county determines your house was undervalued at the time of sale and you’re responsible for making up the tax difference in it’s new appraised value.
Cost #2: Closing Costs
Closing costs includes a wide range of fees that are paid at the end of a real estate transaction. While this isn’t a comprehensive list, you can expect to pay fees including:
- Cost of inspection
- Lawyer fees
- Recording costs
- Appraisal fees
- Document fees
- Surveyance fee
- Title cost
- Sales brokerage commission
- Mortgage applications
- Home warranty
Make sure to ask your realtor to go over what will be included in the closing costs to avoid any unpleasant surprises.
Cost #3: Earnest Money
Almost like a security deposit, earnest money is what you put down upfront before even filling out paperwork – it’s meant to prove your seriousness in purchasing the property. Like a security deposit, you will get your earnest money back if the transaction goes through. If you end up backing out of the deal, there’s a chance you may not get that money back. This should be clear in any contract you sign.
Earnest money can run anywhere from a couple of hundred dollars to a thousand or more.
Cost #4: Paying for the Escrow
It’s common that buyers will be asked to pay for their escrow account upfront to cover expenses like property taxes and insurance. Some lenders will require that extra money remains in the account, making escrow an important part of the home buying budget.
Cost #5: Homeowner’s Insurance
Similar to property taxes, homeowners insurance may be included in your monthly mortgage rate. And while they may be lumped in with other expenses, it’s important to remember it’s there – and that there’s a possibility it could go up or down depending on your coverage needs.
Cost #6: School Taxes
School taxes will differ depending on the district. If you have school-age children, you may be happy to pay more in school taxes if it means a quality education for your child. If you do not have children in or heading to school, you may want to pay close attention to what school taxes you will be expected to pay. Depending on the area, it could vary quite a bit from district to district. This may be a factor in determining where you’re willing to move.
Cost #7: Interest Rates
Interest rates are almost always unavoidable. But remember, having a good credit rating will likely result in a lower interest rate – which could save you big over time.
Cost #8: Moving Costs
Moving vans aren’t cheap – not to mention the boxes, packing supplies, time off work and labor (if hiring a company).
Account for these expenses in your home buying costs, especially if you’re making a long-distance move. Typically the farther away the move, the more costly it’ll be.
Cost #9: Utilities
Remember to account for what utilities you’ll be paying for, especially if you’re moving into a bigger place:
- Cable & internet
The installation of these services can start to really add up. Make sure you’re aware of the costs ahead of time.
Cost #10: Home Maintenance and Repairs
Home repairs or renovations are almost inevitable, especially if you are purchasing an older home. If you know you’ll want to get in there and start renovating as soon as you get the keys, you won’t have much time to save after closing the deal. Remember to account for the cost of renovating your new home when building out your budget. If you aren’t planning on doing repairs or renovations right away, start building up an emergency fund to prepare for any unexpected home repair costs later down the line.
It can be stressful adding up the hidden costs of buying a home. But facing the numbers head-on can help you and your financial advisor better prepare for what’s to come.