When you’re looking for a home to buy, you’re probably focused on two big numbers: the sale price of the home and the amount of your monthly mortgage payment. But these numbers only tell part of the story. There are many other upfront and ongoing costs – or hidden costs – that you may be overlooking.
Don’t forget to factor these hidden costs when considering the true price of homeownership.
1. Home Inspections
You found the home that’s right for you and you made an offer. Scheduling a home inspection should be your next priority, and your mortgage lender may require it as part of the lending process. At minimum, you want a licensed home inspector to evaluate the inside and outside of your home to look for hazards, maintenance issues and other problems you may not have noticed yourself.
There are general home inspections that typically cost a few hundred dollars, and specialized inspections that focus on things as wide ranging as chimneys, electrical work, pests, foundations and more. The cost of specialized inspections can add up, but you’ll at least want a general home inspection and any other inspections that your lender requires.
Even when it isn’t required, getting a home inspection is a good idea. It can help you identify any problem areas in the home, and even request repairs from the seller if you aren’t buying the home as is.
2. Closing Costs
Closing costs are the fees owed when completing a real estate transaction. They may be incurred by the buyer, seller or both. According to Zillow, buyers typically pay between 2% to 5% of the purchase price of their home in closing fees. In some cases, you can request that the seller pays all closing fees, but this isn’t always possible when they have other competing offers to consider.
Closings costs may include:
- Application fee: the cost required for the lender to process your mortgage application.
- Appraisal fee: paid to the appraisal company to determine the value of the home.
- Attorney’s fees: paid to an attorney to review closing documents.
- Escrow fee: paid to the escrow company for conducting the closing.
- Homeowners insurance: sometimes the first years’ worth of homeowners’ insurance is required upfront.
- Survey fee: paid to a survey company to evaluate property lines and shared fences.
- Title search fee: paid to the title company for searching property records and verifying that no one else has a claim to the property.
- Transfer taxes: tax paid when the title passes from buyer to seller.
- …and more.
The number of fees you have to pay and the amount you end up paying depends on many factors, including the state you live in, the requirements of your mortgage lender and if you are able to negotiate down any fees.
3. Repairs and Maintenance
Are you buying a fixer upper? Are there immediate repairs, upgrades and maintenance that you plan on doing as soon as you move in? Even if the home you’re buying appears to be in great shape, you can expect to pay for general maintenance and repair throughout the years. Make sure you’re prepared to pay for both immediate repairs and the ongoing maintenance costs of living in a home.
The monthly mortgage calculators you find online may not include the cost of property taxes. Property taxes are imposed on your home and go toward local services such as roads, emergency services, schools and more. The amount you pay depends on your local government’s tax rate and your property’s assessed value, which isn’t the same as the amount you paid for your home or how much you can sell it for.
Mortgage lenders often roll your property tax payments into your monthly mortgage bill and pay them through a separate escrow account. Clarify the process with your lender and determine your property tax bill ahead of time. Remember, property taxes tend to increase year after year.
5. Homeowners’ Insurance and Private Mortgage Insurance (PMI)
Homeowners’ insurance covers certain types of damage to your home, theft or damage of belongings within your home, liability for accidents to visitors to your property and loss of use costs such as temporary housing when your home is damaged. Most mortgage lenders require you to get homeowners’ insurance and roll it into your monthly mortgage payment, paying it through an escrow account. In other cases, you may want to get homeowners insurance on your own.
PMI is typically required by mortgage lenders when you take out a conventional loan, and you don’t have a 20% down payment. PMI protects the lender in the event you stop making your mortgage payments. It’s typically a percentage of your overall loan amount and may amount to a few hundred extra dollars per mortgage payment.
6. Furnishing and Supplies
Filling a home takes money and time. If you need furniture, kitchen supplies, gadgets, appliances, artwork or anything else for your home, plan for those expenses ahead of time. Ideally, you can slowly acquire these things over time so there is less of a financial burden all at once.