All Hidden Costs of Buying a House You Should Keep in Mind

Owning your home is such an exciting experience. However, aside from the relief from this experience, it is critical to note that buying a home requires more than making the down payment, paying your monthly mortgage, and insurance fees. There’s much more that might get you off-guard unless you are aware and prepared to handle all the hidden costs of buying a house.

We will take you through 7 hidden costs of buying a house and how they arise.

• Closing Costs

Although having sufficient money put aside for a home purchase is a terrific start, it is not the only sum of money you will require to complete a house purchase transaction. You will require an additional 2% to 5% of the home purchase amount to cover so-called closing expenses, which might comprise the following items:

• Fees for appraisals
• A payment made to the escrow agent at the time of the closing
• A year, homeowners insurance. 
• Loan origination costs
• Mortgage points, also known as discount points, are payments made to your lender for a lower interest rate on your home mortgage.
• The cost of a pest inspection to ensure that no unexpected guests are living within your new home
• Taxes on real estate during the first six months
• If your prepayment is less than 20%, you must obtain private mortgage insurance.
• Title insurance is necessary to protect yourself against accusations challenging your legal ownership of the property 
• Additional fees – for example, some states need a lawyer to analyze your closing documents before signing.

On their own, several of these closing costs could appear manageable, but when taken together, they can quickly mount up. You may need to set up several thousand dollars to pay these expenses.

Remember to ask your agent to go over the details of all inclusions in the closing expenses so that you don’t have any unpleasant surprises later on.

• Property Taxes

Since local governments receive property taxes, the money you spend will vary based on your location. Furthermore, the worth of your home also determines the amount of money you owe plus the property tax value in your area.

The average annual property taxes in the United States are roughly 1% of the value of a home.

To find out the property’s approximate value, you multiply the assessed property value by the property tax rate in your area, which can usually be found on your municipality’s website. 

When you have your home loan established with an escrow account, your monthly mortgage payment will include collecting your property tax payments. Aside from that, you’ll have to submit your property taxes directly to your regional tax office after you receive your bill from the government.

Property tax is a recurring expense, provided you own a property. Recognize that it will keep on rising rather than decline in the vast majority of cases.

At the close of their first year of ownership, some property owners may face an additional property tax payment, which may be rather unpleasant. The county may decide that appraisers devalued your home at the time of the sale, in which case you would be responsible for making up the tax difference between the sale price and the current appraised value of your home.

• Home Inspection

It is crucial not to confuse the house inspection with the valuation or the final walkthrough. A home inspection is a process that takes place after you have signed the purchase agreement to assess the present condition of the property to make you conscious of any possible issues, damage, or safety concerns.

According to Realtor.com, the typical cost of a home inspection is between $300 and $500. Houses larger and older may necessitate a more thorough assessment, which will most certainly increase the ultimate cost.

Even though the house inspection will cost you money, the comprehensive report may offer you vital knowledge and may even be cost-effective. The house inspection may reveal significant damage or flaws — such as a serious air conditioner or plumbing problem — that will influence the property value, which would then affect the conditions of the sale or compel the seller to make repairs before completing the purchase.

It is possible that, even if the home is free of serious issues, it will still have several minor or cosmetic defects that will result in additional future housing expenses. Check out our home inspection checklist for more information on the many types of faults that you should watch out for during your inspection.

• Mortgage Insurance

Perhaps you do not have the required 20% to contribute to your down payment. You do not have to let this deter you from purchasing a home. It means that you will almost certainly need to obtain mortgage insurance (commonly known as PMI), which several lenders require to mitigate their risk. It will appear as a standalone product in your closing costs.

• Moving Costs

Moving vans are not inexpensive, let alone the packing supplies, boxes, time away from work, and labor required (if hiring a company).

Consider including these fees in your home-buying budget, especially if you’re planning a long-distance move to save money. 

• Utilities

As a tenant, you may be accustomed to paying for some utilities every month. Maintaining homes often happens at a cost that exceeds the homeowner’s income, which means that your utility bills will likely climb compared to what you are now spending on them.

Some of the utility bills to factor in include:

• Electricity
• Gas 
• Sewer
• Water, 
• Cable, and 
• Internet 

The cost of installing these services can quickly become prohibitively expensive. Prepare yourself for the expenses by learning as much about them in advance.

It is also essential to consider the location and size of your new house when calculating your utility expenditures. It is possible that increasing your living space from a 600-square-foot apartment to a 2,000-square-foot mansion will double or triple your energy bills. Once you factor in the rates for your municipality’s sewer and water services, your monthly utilities might be more than $500.

• Home Maintenance and Repair

In contrast to renting, when a landlord is responsible for upkeep and repairs, you are responsible for all of these expenses as a homeowner. The need for house repairs or renovations is often unavoidable, particularly if acquiring an older home. After closing on a property, if you anticipate going in there and starting remodeling immediately after receiving the keys, you won’t have a lot of time to save after completing the transaction. 

When creating your budget, keep in mind to factor in the costs of upgrading your new house. If you aren’t intending on undertaking fixes or renovations immediately, consider saving money for an emergency fund to help you prepare for any unforeseen home repair bills that may arise later on in the future.

Bottom Line: Hidden Costs of Buying a House

When considering the cost of buying a house, it is critical to remember these hidden costs and include them in your budget. It could be financially overwhelming, but since they are part of your home, there’s no option other than facing these expenses. Some may turn into monthly bills, while others might pop in unannounced when considering the costs. Your financial advisor can help you create a solid plan that will cater to all these expenses.