Hidden Costs of Buying a Home

Don’t let hidden costs during home buying catch you off guard.

unexpected costs

Don’t be caught off guard by unexpected costs during the home buying process.

Hidden costs are heading your way and you have no clue.  You’re so excited you’ve finally found your dream home. After months of searching, you found it.  That perfect craftsman style home with a fenced in backyard.  Your Chip and Joanna Gaines decorating dreams can finally come true.  You think its listing price is right for your budget, even though it’s on the higher end. But then the fees start popping up.  An inspection fee for a few hundred, a termite inspection fee for another hundred, and now the lender wants a survey completed. Before you can blink, you are approaching $1000.

When you went into your first home purchase, like many people, you weren’t aware of the little costs along the way, and some of the additional big ones, like closing costs. Luckily, these are questions answered by a realtor.

Below, we list out the hidden costs during the home buying process. We also include hidden costs during closing and monthly payments going forward.

Hidden costs

Be ready to pay some of these costs after you make an offer on your dream home.

Hidden costs during home buying

Earnest Money/Earnest Payment

Earnest money is a lump payment of 1%-2% of the listing price (or up to 10%). This money is paid as a statement of good faith that you, the buyer, is serious and plan to purchase the home.  You may lose this money, should you back out of the deal.  This money is held onto by the seller’s broker and put towards closing costs or down payment for the buyer.

Inspection(s)

Yes, more than one.

A home inspection isn’t required, but has many benefits. You can pass on it, but we don’t advise it unless a current inspection is available. Inspections are made public information in several states.  If a previous buyer backed out on a deal after a home inspection, you can view the report before deciding if you would like your own conducted.

Inspection types and estimated costs-

  • General inspection $200-$300
  • Termite inspection (inspection of wood) $100-$200
  • Sewer inspection (for an older home or one in need of renovation) $200-$300

Inspections give you the opportunity for flexibility: negotiate price, request repairs, scratch the deal in its entirety, or simply budget for the repairs in the future.

**pro tip- be present for the inspection so you know what is found firsthand, rather than through pictures.

Survey

Requested by lenders to confirm boundaries of the listed property.

Hidden costs

Know your expected closing costs ahead of time. Your realtor and lender can help you determine these.

Closing Costs

Closing costs are fees due at the close of the transaction.  For instance, expect the closing costs to be $6000-$15000 for a house that is $300,000.

This one-time fee includes some or all of the following:

  • Appraisal fee– a home appraisal is a big expense, but a requirement for lenders to assure the home appraises for the cost
  • Title, attorney, document prep, or underwriting fees– Don’t forget about the extra fees involved with notaries, filing fees, escrow fees, or other fees related to transferring the deed to your name
  • Wire transfer fee
  • Escrow fees– Property taxes and insurance paid into an escrow account at time of closing
  • Credit report fee– pulled prior to closing to confirm credit score and that nothing new has popped up during the process
  • Interest– prorated amount from the date of closing to the first of the next month (when your first mortgage payment is due)
  • Lender fees– administrative costs, wire transfer fees, credit report fees, etc.

Commissions:

Real estate agent commissions are typically around 6%. These commissions are split between the buyer’s agent and the seller’s agent.

If you’re the seller of the home, before signing a listing agreement, ask your agent if the commission is negotiable.  For a $300,000 home, an agent commission will cost the seller about 18K.

Monthly Costs:

Before finalizing an offer on your dream home, talk to your realtor to estimate your monthly mortgage.  You can also request an estimate of the home’s monthly utility costs from your agent. Keep the following costs in mind.

  • Property taxes are reassessed each year and you’re sent a letter stating your property value, as well as how the new taxes will affect your monthly payments. Increases in the value of the home, renovations, or overall market conditions can cause property taxes to rise and affect how much your monthly mortgage payment is.
  • Homeowners insurance, hazard insurance, private mortgage insurance
  • Homeowners Association fees, condominium fees, or other fees associated with the community
  • Utilities (separate from a mortgage payment, but important to keep in mind)
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