Homeownership is the ultimate goal for many, and yet the journey from renter to homeowner can be full of surprises. Some are pleasant, such as finding a property you can afford in a location you love, and some not so much. In this article, we’ll look at several hidden and/or unexpected costs associated with buying a home. The goal is to be sure you are well aware of what’s ahead and be prepared when it is time to deal with those costs or simply budget for them.
What sort of costs are we talking about? Well, as one financial expert from Kiplinger warned, “Additional expenses come up throughout the home-buying process. Some of these are upfront, out-of-pocket costs that are nonrefundable even if you end up not closing the deal. Others will hit your wallet after the home is in your possession. Experienced buyers probably are familiar with these charges, but first-time buyers can be caught off-guard.” Knowing about them, and building them into the down payment or closing fees can work, but even then, there are some that hit before that. So, let’s take a look at the worst of them:
- The inspection – It goes without saying that you should never buy a home that has not been officially and formally inspected. However, a good and thorough inspection can be quite costly. Be prepared to find the best inspector and pay what they ask because they can often find issues that can be used to negotiate a better price, or you can have the owner do those repairs before selling.
- Appraisals – Most lenders will want to be certain that the amount you are asking for is appropriate for the property in question. That requires a formal appraisal to be done, and most mortgages are not going to move forward without one. It is the lender who hires their own expert, and you who pays the bill. It is to your benefit to have it done this way because that expert itemizes everything about the home, and puts a value to it.
- Escrow – Did you opt to have taxes and insurances paid by your lender? Even if you didn’t, an escrow account might be needed along with the loan agreement since it lets the lender pay a number of ongoing expenses associated with the home. Many buyers are required to pre-pay into the escrow at the time of closing.
- Closing costs – While you can roll them into the mortgage, you may not want to do this. Typically, that means from two to five percent of the purchase price is needed to pay off the closing costs. In other words, if you have 20% down payment, it has to be around 23% to pay the closing costs, too.
Don’ t forget you will also need a bit of a cushion for fuel, deposits on gas tanks, and any immediate repairs the property requires before you can officially move in.