Hidden costs of buying a home

Saving for a down payment and getting pre-qualified for a mortgage are major financial milestones in the home-buying process. But there are more money-related matters — and homebuying myths — to be aware of during the journey to homeownership.

Prepare yourself by budgeting for the other charges associated with buying a home. Be aware that, even if you’ve bought a home before, the costs may vary by state or region.

Good faith deposit costs

Also known as earnest money, this is a security deposit you'll make to prove your intent to buy the home. This amount is held by the title company. When you purchase the home, the funds are then applied toward the down payment. Though many homebuyers are aware of this payment, what can surprise them is that the check tends to get cashed right away. Also, you may be unable to recoup this money if you don't purchase the home.

Home inspection costs

You can learn a lot about the condition of the home you're about to buy with a thorough home inspection. Independent third-party inspectors are contacted to give an honest and unbiased opinion of what repairs might need to be done to the property. Some buyers might think they can save money by looking for the problems with their own eyes and not hiring an inspector. However, this could be a very costly mistake if problems are discovered after the purchase.

In addition to a home inspection, you might consider a radon inspection as well as a termite inspection. This site, with certified home inspectors, can help you find a reputable resource near you.

Down payment costs

The amount you'll need for your down payment will vary depending on the price of the home and the type of mortgage you seek — primary residence or investment. Some lenders may offer loan programs with low down payment options, but based on the percentage of your down payment you may be required to obtain mortgage insurance, which will increase your total monthly obligation. Discuss your options with your lender. Your credit score plays a substantial role in determining the mortgage options and terms available. If you want to help get your score in top shape, you may want to take a look at our tips on how to improve your credit score.

Closing costs

Closing costs include certain fees involved in the home sale and mortgage transaction. These often include, but are not limited to:

• Home appraisal fees
• Credit report fee
• Flood certification fee
• Underwriting fee
• Title fee
• Loan origination fee
• Recording fee
• Application fee (some, but not all lenders charge this)
• Homeowner's insurance premium
• Property taxes
• Miscellaneous fees (real estate attorney, real estate agent, home warranties, etc.)

Fees can vary based on location, type of property, mortgage lender, cost of the home and loan product. You may want to put the invoices and receipts gained during this process in the same spot where you keep your closing documents. Your real estate agent and lender can help estimate fees for your situation.

Furnishings

For many first-time homebuyers moving from an apartment, you may be moving into a home with more space, which means you may need or want more furniture. The desire to fill this additional space can feel like an unexpected cost of buying a home. Consider your budget when upgrading to a bigger home, as the average homeowner spends $16,000 in new furnishings.

Moving costs

Speaking of furniture, it's important not to overlook the items you already own. In the midst of purchasing a new home, moving your furniture may be the last thing on your mind. Moving — whether you decide to use a service or do it yourself — is often overlooked and can be a hidden cost of homeownership.

Upkeep and repair

Maintenance comes with homeownership. This change may be jarring for first-time home buyers, who may have previously rented and relied on landlords, who are typically responsible for repairs. As a homeowner, you’re responsible for fixing things yourself or hiring someone to do it. For a quick outdoor impact, there are many things you can do to quickly increase the curb appeal of your home.

Home upkeep can be a great incentive to pick up a few DIY skills. Check our tips on the pros and cons of DIY home improvements. Keep in mind: Home repairs often require buying tools, parts and sometimes, hiring professionals, all of which factor into the hidden costs of homeownership. With that in mind, saving and budgeting for home maintenance is an important element to consider.

Security

If you’re coming from a condominium or an apartment, you may have had most, or all your security features handled by your homeowner’s association. As a homeowner, security for your home falls solely to you. Security items, such as alarm systems, door locks, hinges, and security lights can be costly, so do your research to find the options best suited to you.

Escrow

An escrow is an account used as a neutral intermediary between the buyer and seller, typically in the purchase of a home. Earnest money is placed in escrow to be applied toward purchasing the home, provided no issues are discovered during the inspection. For instance, if the home you’re buying fails inspection, earnest money in the escrow account would be withheld from the seller and returned to you, the buyer.

It’s important to note that certain loans can require buyers to maintain an escrow account for the purpose of paying expenses like property tax, homeowners insurance or the mortgage itself. While not an actual cost of buying a house, funds in an escrow account are temporarily unavailable for personal use and can feel like another hidden cost of buying a home.

Transfer tax

Transfer taxes are levied specifically when the deed to a home is transferred from one person to another. While they vary from state to state, generally a transfer tax is some percentage of the home’s sale price. Even a small percentage of a large purchase, like a home, can become substantial quickly, so this is a cost that’s worth keeping track of.

New appliances

Sometimes, the sellers of a home may take some appliances with them. If you take your existing appliances, you might find that an appliance is broken during the move to your new home, or it might be as simple as deciding your old appliances don't go well with your new home's aesthetics. For these reasons, a home may require new appliances, which is a cost that you can be prepared for.

When looking at potential homes, don't be afraid to ask about how old the appliances are, whether they're under warranty and whether they've needed repairs in the past. That way you can get a better idea of any appliance maintenance that might be needed and budget accordingly. That warranty question can be an especially important one, as broken appliances can be costly unexpected expenses. That's one of the reasons why being prepared with an emergency fund can help reduce stress and help mitigate potential damage.

Timeline of payments

It’s important to know when you're expected to make the payments associated with home buying.

1. Good faith deposit — when you make a purchase contract offer on a property
2. Home inspection — generally, within 10 days of an accepted purchase contract
3. Down payment and closing costs — these are paid with certified funds at your closing appointment to finalize the transaction

Costs of owning a home

The cost of buying a home comes with the cost of owning one. Many expenses are long-term and, in some cases, recurring costs. These recurring costs include utilities, homeowners insurance and maintenance, which can come due as soon as your purchase is complete. Other expenses, like property taxes and repairs, may sneak up so be mindful of these.

Be aware of costs specific to your home as well. Not every home belongs to a homeowner's association (HOA), but some do and homeowners should be aware of HOA costs in those cases. Keep homeownership costs in mind as you plan for the financial commitment of home buying as it can help provide a more accurate view of what to expect.

Planning ahead

Understanding hidden costs can make home buying seem daunting. However, millions of homes are bought and sold every year successfully. If you decide home buying is the right decision and you want additional resources on budgeting for hidden costs, it may be helpful to visit our how-to guide with tips on budgeting for non-monthly expenses. Best of luck in your home-buying adventure!