Don’t Get Scared by These 10 Hidden Homebuying Costs

There’s a lot to consider when buying a home, and perhaps one of the most important factors to prepare for is all the different mortgage costs and fees. You may already know your budget for the property itself and are saving up for that infamous down payment, but are you aware of all the additional hidden costs that may come with buying and maintaining a home?  

As a future homeowner, it’s imperative to take a step back and understand the big picture so you’re not overwhelmed and unprepared on closing day. Don’t get scared by some of these often-overlooked costs and learn more below.

One-Time Costs

Earnest Money

Earnest money, also known as a good faith deposit or good faith money, is a deposit made to the seller to show that the buyer is serious about acquiring the property. This deposit can typically be around 3 percent of the purchase price and can usually be applied to your down payment or closing costs if the seller accepts your offer. Earnest money isn’t always required but can be helpful, especially when you’re buying in a competitive market.

Home Inspection

When you start the homebuying process, a home inspection is usually recommended even if it’s not required. It can actually help save you a lot of money, especially if the inspector finds faults with the property that you or the seller can fix early on. In some cases, you can even negotiate with the seller to decrease the sale price. If you find that any of these issues aren’t worth the time, effort and money to fix them, you may want to consider searching for another home to buy.

Home Appraisal

Lenders generally require you to pay for a home appraisal to learn the property’s market value. Home appraisers look at the condition of the home’s interior, exterior and major systems and similar properties that have been sold recently to help determine the value. The cost of a home appraisal can vary greatly depending on the property’s size and location among other factors so you may want to speak with your lender to get an estimate.

Origination Fee 

Many lenders charge a loan origination fee which is basically the cost to set up and close your loan. The amount and the way the fee is set up can differ between lenders but they usually charge a certain percentage of your loan amount. Make sure you double check with your lender to know exactly how much they will charge you.

Moving Costs

Buyers can often get so caught up in the actual homebuying process that they forget about how they’re going to physically get in the home. Moving costs can be a significant expense, especially if you’re hiring professional movers. Consider budgeting for packing supplies and hiring a moving company or renting a moving truck.

Ongoing Costs

Property Taxes and Homeowners Association (HOA) Fees

You must consider any monthly property taxes imposed by the city or county the property is in. And, depending on the neighborhood, you may have HOA fees as well. These are fees that you pay to the association and go to any shared services like landscaping, utilities or garbage collection.

Private Mortgage Insurance (PMI)

If you were unable to make a large enough down payment, you may need to pay private mortgage insurance. PMI is usually required when you take out a conventional loan and pay a down payment that is less than 20 percent of the purchase price of the home. In many cases, you may be able to stop paying this fee once you’ve paid down your mortgage to a certain amount.

Home Maintenance

Once you own a home, you’re responsible for everything in it, including any home maintenance that may come up. This can include anything from having to hire a plumber for a leaky sink or getting yearly check-ups for your heating, ventilation and air conditioning (HVAC). Consider these maintenance tasks as you’re preparing your monthly, quarterly or yearly budget.

Utilities

If you’ve never owned a home before, you may be surprised about how much utilities add up each month. These can include items like gas, electricity, internet, garbage, water, heating and more. You should ensure you can pay for these in addition to your monthly mortgage payments.

Emergency Fund

No one can predict the future. And the unexpected can happen at the most inconvenient times. It doesn’t hurt to put aside some extra money for surprise issues or financial emergencies such as flood or fire repairs or even loss of income. You may want to make sure you have enough money to last a couple months as you navigate your emergency.

Be Prepared and Aware

While buying and owning a home can be costly, you can ease the burden by knowing what to expect and preparing for your dream home. Make sure you understand and know about all the hidden costs and fees before, during and after the homebuying process. It may also be beneficial to consult your lender, real estate agent and/or a financial advisor to determine what you can afford.  

Don’t let these mortgage costs and hidden fees scare you. It may only be a temporary hurdle in your journey to homeownership.

This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.