The Hidden Costs of Buying a Home
The principal and interest on a home represent the biggest investment of your life—no pressure! But there are additional costs associated with buying a home that you might want to consider as you set your budget and begin searching for that perfect new place. They’re not exactly hidden, but they’re sometimes overlooked. Keep reading to find out what costs to plan for on your homebuying journey.
Before You Get the Keys...
Unless you waive an inspection contingency—which is not recommended—you’ll likely be required to pay for an inspection after your offer on a house is accepted. Inspections usually cost between $350 and $1,000 depending heavily on where you live. For me personally, in a mid-sized city, I paid about $500 for an inspection.
Inspections may seem like an unnecessary cost, but they’re highly recommended and sometimes required, and for good reason. A professional inspection can help you determine if the house has major problems you and your lender won’t want to take on. Results from an inspection can also help you renegotiate for a lower price to offset the cost of necessary repairs, if applicable.
And if you get an A+ inspection report? Even better! You can feel confident in your decision to purchase the home, and you’ll have a better chance of not paying for repairs down the road, saving you money in the long run.
This is another not-exactly-hidden cost, but one that can be a whopper for people who aren’t in the know. Closing costs typically costs between 4 and 5 percent of the total purchase price of the home, depending on factors like your lender and where you live.
Some lenders cap closing costs at 3 percent, for example, while others may charge more. For a $300,000 home, a low, 2 percent closing cost would be $6,000. On the high end, it could be as much as $15,000. Closing costs are due in a lump sum the day you close, and the buyer almost always pays at least a portion of—and often a majority of—closing costs.
After your loan has been approved but before you close, your lender will send you a document outlining your closing costs and every last penny due at closing—they’re required by law to do so. Yes, you’ll have a few days to prepare and gather the funds, but it’s better to know well in advance that you’ll need to have a few thousand dollars handy in order to get the keys. Closing costs include things like lender fees for providing you with a loan, lawyer fees for transferring the title, and prepaid costs for homeowner’s insurance and property taxes.
Similar to inspection costs, moving costs will depend largely on where you live and the availability of movers. For an in-town move, I personally spent another $450 to $500 on movers to haul my furniture and other items from my apartment to my new home. I packed everything myself; they were just there to unload.
While you can explore more DIY options, such as renting a moving truck and baiting friends and family with pizza and beer, no move will be completely free. Budget accordingly, and be sure to build in time to compare rates for local movers and truck rentals.
This is one I truly consider a hidden cost. Thinking back to the interim period before I moved from my rental into my new home, I was spending small amounts of money on all sorts of little conveniences, namely food. I relied on cafes in the morning for WiFi and coffee and copious amounts of pastries (hey, escrow can be stressful), fast food at lunch, and whatever restaurant was open and nearby when I got around to eating dinner. Sure, these were nominal amounts, but they did add up.
On the flip side, eating out meant I didn’t have to worry about unpacking my kitchen to find a pan or throwing away unused food in my refrigerator. You also may have to factor in unexpected housing costs such as a night or two in a hotel if your closing date shifts. But don’t panic: We’ve got tips on how to keep your closing date.
LDRs (Long-Distance Relocations)
If you’re doing a long-distance house hunt, you’re going to have to factor in more money for traveling back and forth, hiring long-distance movers, and shipping items. You may also have to pay more before you close for things like overnighting signed documents and, if you can’t attend the closing in person, arranging and paying for power of attorney.
Once You Move In…
Unexpected repairs are one of the joys of homeownership. My own real estate agent was helpful and savvy: She wrote in a clause that if certain appliances broke within the first year of me owning the home, the sellers would be required to pay for repairs. Of course, that didn’t help at all when a pipe burst six days after moving in.
Your new home will likely be larger than your previous rental (if you’re in a major city moving into a condo, this may not apply to you).
Even if the square footage is the same, you may have moved into a historic home with lackluster insulation, causing energy bills to rise. Or you may have gone from a two-story townhouse to a one-story single-family home. If you’ve moved south, you may find you’re relying on the air conditioner more, or perhaps you’re cranking the heat 24/7 after a move somewhere colder. If you’ve moved from a rental, maybe you were used to a flat utility rate or included services like water and trash collection.
This is all to say: Your utility bills might cost more than they used to. Plan accordingly.
If you’ve transitioned from renter to owner, another obvious but oft-forgotten difference is paying property taxes. Depending on where you live, you’ll be responsible for paying county and possibly additional city taxes based on your local tax rates. Most areas collect property taxes quarterly (four times per year) or semi-annually (twice per year).