In today’s world, the price on the tag is rarely the total cost. Whether it’s a cell phone plan, an automobile, a hotel room, or a dinner out, Americans have gotten used to the fact that necessary taxes, fees, tips, and other costs will probably be added to the final amount due. Purchasing property is no exception. Financially savvy homebuyers know that they need to prepare for the hidden costs of buying a home.
The Hidden Costs of Buying a Home
Making sure that you can afford your monthly mortgage payment is vital, of course, but it’s not the only financial concern you’ll need to consider when purchasing a house. While they may be less obvious, the hidden costs of buying a home still deserve your attention and a place in your budget.
What are the hidden costs of buying a home?
As HuffPost explains, earnest money is like a security deposit. It’s a relatively small sum that a buyer forks over with their offer to demonstrate that they’re serious. If the sale proceeds, the money is typically applied to the sale, but if you back out or your financing flounders, the seller can often keep it.
Many lenders require a general home inspection before they’ll approve a mortgage, and the buyer is expected to foot the bill. Smart buyers don’t fight this requirement; they embrace it. After all, inspections can help you avoid a property that is plagued with serious problems. LifeHacker recommends ordering multiple inspections. Start with a general inspection and a termite inspection. Then, if any worrisome features pop up in these initial inspections, order additional inspections to take a closer look.
Closing costs are fees paid at closing to your lender and various third parties for the services that they’ve provided during the real estate transaction (source). Some common charges are appraisal fees, survey fees, underwriting and origination fees, wire transfer fees, document prep fees, title insurance fees, recording fees, and credit report fees. If you’re purchasing discount points to secure a lower interest rate, their cost will also be included in the tally of closing costs.
A home is a major purchase, so you’ll need to protect your investment with the right insurance. As Listen Money Matters reports, this means purchasing at least homeowners insurance and title insurance. Depending on your location, you may also want to buy flood or hazard insurance.
Private Mortgage Insurance
When you use a mortgage to finance the purchase of a home, you aren’t the only one with an interest in the property. Your lender also wants to ensure that their investment is protected. Private mortgage insurance, or PMI, is how they do it. If you default on your loan, PMI helps your lender recoup their investment. Although you won’t benefit directly from the policy, you’ll have to pay the monthly premium if your down payment is less than 20 percent (source).
Property taxes are a fact of life for homeowners. While policies vary by city, county, and state, you should expect to pay tax based on the assessed value of your property. Tax hikes aren’t the only things that can increase your tax bill; improvements that raise your property value can also raise your property taxes (source).
Homeowners Association Fees
Living in a condo or planned community can reduce your responsibilities and provide access to shared amenities that you might not otherwise be able to afford. However, these benefits come with a cost. HOA and condo fees are normally collected to offset the costs of maintaining the shared spaces (source).
Maintenance and Repairs
When the furnace dies or a pipe fails at a property that you’re renting, getting it fixed is normally your landlord’s responsibility. When disaster strikes a property that you own, it’s your problem. Being a homeowner means making room in your budget for routine maintenance and having a rainy day fund set aside for emergencies (source).
At PrimeLending of Springfield, Missouri, we know that buying a home is a major decision. We firmly believe that it should also be a positive experience. That’s why we provide excellent service, clear communication, and useful insights. To discuss the possibilities, contact us today.