Hidden Costs of Buying a Home
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Buying a house is expensive. Even a small home in a modest area is out of reach for many people. On top of the actual list price, there are a lot of hidden costs of buying a home. Compared to the house price these costs may seem small but they can still put a serious dent in a home buyer’s budget.
According to the state’s laws, your lender’s terms, and your particular transaction, these hidden costs may vary. But below are some of the most common home buying hidden charges. Understand that these costs affect home buyers, not home sellers.
In this article, we’ll be uncovering hidden home-buying costs you may not know about, including:
- Closing Costs
- Property Taxes
- Property Insurance and Private Mortgage Insurance
- Utility and Home Buying Bills
- HOA Fees
- and, Escrow Fees
Without further ado, let’s jump into the hidden costs of buying a home.
Closing Costs of Home Buying
The closing cost of a house includes a few different expenses rolled into one big amount. That takes a serious bite out of the home buyer’s savings, though none of them goes into the home sellers’ pockets. As per an estimate, the closing cost can be somewhere around 2% to 5% of the total home purchase price. So the purchase of a $400,000 home may translate to an amount between $8000 and $200000.
Of the closing cost, the major chunk is the realtor’s fee. Then there’s the lender’s fee, which is the accumulation of all the legal fees that your mortgage lender charges you. You can also add the compulsory home inspection to the closing cost of the house.
>>CHECK OUT: What are the closing costs in Florida?
Property Tax
Now that you have taken your home out of the hands of the home seller, you are liable for the property tax. As you might not know many lenders demand an amount to be put in escrow at the time of closing the deal. An amount they use to pay your property tax. Your monthly mortgage can be lumped together with your property tax. The lender will redirect that amount to an escrow and will pay your yearly taxes with it.
The property tax can go up. even though your monthly mortgage is fixed. If you bought an undervalued property and the rates go up, you will be paying a larger amount of tax than the home sellers.
Property Insurance and Private Mortgage Insurance
As a home buyer, you have to take up the homeowner’s insurance. Just like the property tax, it can be part of your mortgage payment. But it’s important to understand where all your mortgage money is going besides paying off your house.
Insurance premiums are higher in flood or natural disaster risk areas, and lower in safer areas. There are some other factors that can drive up the insurance premium as well. It’s also important to know that even though your core mortgage value doesn’t go up, your insurance premium might.
Many lending institutions require the new home buyers to pay for a private mortgage payment, as part of the deal. This insurance protects the lender against your potential defaulting.
Utilities and Bills within Home Buying Cost
This is another of the home buying hidden charges that new home buyers should know of. You have to pay deposits for any new utilities you set up in your new home. If you are getting your utilities transferred, you might be exempted from them. If you are a home seller as well as a home buyer, there is also a way to mitigate that cost. You can demand a refund of your utility deposits on any of the utilities you are discontinuing, in the home you are selling.
Apart from this one-time deposit cost, you will be paying a monthly sum in the utility bills as well.
Maintenance, Repairs, and Renovations
Even when you have invested in a home , prepare to invest a lot more in maintenance, repairs, and renovations. This is another one of the home buying hidden charges that people miss out on. After the home appraisal report and a list of necessary repairs, the seller will not transform the house.
That’s not how it works. Even when the home sellers take care of most of the repairs, or agree to cut the price of the property, there is always something to do. Depending on the condition of the house, these maintenance, repairs, and renovations can cost you from a few hundred to a few thousand dollars.
HOA and Condo Fees
If you have purchased a condo or a home in a communal area, you will have to pay a condo or HOA fee. These fees are something every resident in the community will be liable for. And it goes towards any repair or work that needs to be done on your residence. So even if does come as an expense, it might save you a significant amount in undertaking maintenance, repairs, or renovations yourself.
Escrow
An escrow is an account in which the money related to the purchase of a house can sit-in until the deal is closed, or in some cases, even after it. Most of the time, the escrow is operated and used by the buyer’s lender. It can hold the earnest money paid by the home buyer or the price of the house until the home sellers make necessary repairs to the properties.
Sometimes, even lenders require home buyers to set up an escrow so that the initial year’s costs of owning a house can be paid out of it without pressurizing the home owner’s regular budget, or running the risk of them defaulting on the mortgage payments.
Home Buying Cost Explained
Some of the costs above can be lumped in with your mortgage payment. Some can be taken care of with your savings. It is important to have a decent amount set aside for some of these home buying hidden charges. Whatever your savings for buying a house are, break them into a few pieces.
The down payment can be one piece, moving cost can be another. Home buying hidden charges should also be accounted for. Otherwise, it has the potential to seriously upset your budget for the first year of living in the new home. It is also important to note that realtors will help you with the process and you can always contact us if you have any questions.
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