What an exciting time! You have saved a nice pile of money, worked with a lender and a real estate agent, searched the area for top-quality homes, and finally found the perfect place to grow your future.
Buying a home is one of the most exciting times in your life, but if you are not ready for the hidden costs, excitement can quickly turn to frustration. While “hidden” might be a little misleading (no one is actually hiding them from you), these surprise costs can turn your hearty savings into a scrawny bank account.
The first step, like everything in real estate and mortgages, is knowledge. Let’s look at some of the most common hidden costs so you can have fewer surprises before, during, and after your home purchase.
Buying Your First Home? Here are Some of the “Hidden” Costs” You Should Expect
Up to $1,000, usually less
For most property transactions, the first major costs are home inspections. And yes, we mean multiple inspections. In most cases, the lender will require a general home inspection, but this phase also serves to help you, the buyer. A general inspection will review the house from top to bottom (quite literally), looking for issues such as roof damage, mold, window leaks, damaged walls, and cracks in the foundation. A general inspection is roughly $200, give or take.
You should also have a pest inspection, which will investigate the house for termites and other insects that could damage the home. This usually costs about $100. Other inspections can include sewer, water, and septic inspections.
Altogether, inspections can go over $1,000 (usually less), but it’s a small price to pay to ensure you are buying a sound, reliable, safe home.
Usually $400 to $600, as high as $1,500
If you are using a loan to purchase your home, you can expect an appraisal. This is a critical step in the home-buying process, and it’s required by lenders. Essentially, a lender wants to know that the home they are lending money against has value, just in case they need to foreclose on the property.
An appraisal is completed by a trained professional who understands how to take market information, home features, square footage, lot size, and numerous other factors to create a relatively-accurate calculation for the home’s value. Because it requires the service of a professional, the cost of a typical appraisal is about $400 to $600, although it can be higher in certain areas.
Roughly 2 to 5% of Purchase Price
Once the offer is accepted and the inspections and appraisals are completed, you can move to closing. At this point, you should receive a detailed list of the closing costs (it’s hard to call it “hidden” when you’re give a list), which will include a variety of fees and expenses. The closing costs can include escrow fees, title fees, attorney fees, prorated interest, and other important aspects of the loan. It can also include appraisal fees, depending on how your mortgage agreement is structured.
The total closing cost is usually about 2% to 5% of your total purchase price. So if you are buying a home for $500,000, at 3% (for example) the closing cost would be $15,000.
Even the newest home may need repairs, and old homes will likely have repair costs ranging from a couple hundred dollars to $10,000 or more. What might need repaired? Frankly, just about anything in the house. The roof may need patching, the floors may need replacing, the sinks may need fixing…the list goes on, and some of these little task may not have been noticed by the inspector.
How much you need for repairs will vary widely, so it’s really impossible to put an exact number on this cost. For most homebuyers, however, having about $5,000 set aside for repairs and updates should cover the costs.
Roughly .5% to 1% of the loan total
The origination fee is a cost charged by the lender for processing the loan. It can help pay for many of the services completed by the lending agent, including processing the application, organizing documents, and verifying information.
They usually cost about 0.5% to 1% of the loan total, so if your loan were for $500,000, the origination fee, the loan origination fee could be as much as $5,000. In many cases, this fee is part of the closing costs, so it’s likely wrapped up in that expense.
Higher Utility Bills
Possibly $600 more a year (Or higher)
This one could arguably be called a hidden cost. (But again, no one is hiding it from you.) If you are purchasing your first home, chances are high that you are moving from a small place, perhaps an apartment or duplex, to a larger single-family home. In this case, you will inevitably have higher utility costs.
The increase could be minimal, or it could equal $50 or more a month, which means you’re looking at about a $600 increase (or more) in your utility bills.
$1,000 to $2,000 annually
Your home needs insurance. It’s likely the single-largest asset you own, and if it were to be destroyed, without insurance you would loose a massive amount of money. Besides that, if you have a mortgage you are required to carry insurance on the home. Most people are well aware that insurance is required for homeownership, but there are different types, types that often create surprise for first-time homebuyers.
Flood insurance, for example, can be a costly expense that quickly reduces your monthly budget. Depending on the area and your general policy, you may need special hurricane, tornado, or fire insurance.
Find the Perfect Loan for Your Home Purchase
Let us make your home purchase more enjoyable! When you work with our dedicated tam, you’ll get the information you need to make the right choice for your mortgage. We’ll explain everything in clear language, and we’ll do our best to help you understand all the costs involved in the mortgage process.
By eliminating any surprises, we can help you have a better mortgage experience!
Chad and his team was awesome throughout the entire process. They made things easy and smooth, and able to answer any questions at anytime. By far the best experience with a lending team yet. Great job!”
“Chad and his team were fantastic. They were incredibly responsive to us and our needs. Chad laid out several refinance options for us, and was very supportive when we decided on the option we felt was best for our family. Chad and his team worked our deal and got our mortgage funded incredibly fast, with excellent service and even took the time to thank us personally once we funded. I can’t recommend Chad enough!”
“Chad – Your team has been nothing short of amazing. Juliann has aggressively followed-up with escrow and gone out of her way to make sure things get done on schedule. Matt and I can’t express to you enough how much we’ve appreciated all of your counsel at the beginning of the process and her execution to see it through to close. As always, appreciate everything that you guys have done to see this through.”