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Hidden Costs of Home Buying
The biggest expenses first-time buyers don’t expect

You’ve been saving up for years. You found the home of your dreams and negotiated a price that works for you—you even saved enough for a 20 percent down payment! A big weight likely feels lifted from your shoulders. But don’t get too comfortable. First-time home buyers are often vulnerable to surprise costs for which they did not budget. Don’t be caught off guard; familiarize yourself with these five common hidden expenses:

Home inspection: So you submitted an offer on a home and the seller accepted. Now you’re all set to move in, right? Wrong. Would you buy a used car without checking under the hood first? Similarly, hire a certified home inspector to pore over the entire property before you close on the house. If any structural or mechanical issues are uncovered, you can ensure the seller repairs them before closing or negotiate the price down for you to cover the costs of repair. Without a home inspection, you will be solely responsible for anything that should need fixing once you move in.

Even though a reputable inspector charges between $200 and $600 depending on your location, it is money well-spent up front in comparison to a potential home repair that costs you thousands down the road.

Appraisal fee: Your mortgage lender wants to make sure that the home you are about to buy, with his or her help, is worth every penny. That’s why the financial institution will charge you an appraisal fee. This money, charged directly to the borrower by the lender, goes toward an independent certified appraiser, who will assess and document the home and its property value. Be prepared to shell out an additional $250 to $600 for this necessity.

Closing costs: After you seal the deal and sign the papers, you’ll need to fork over an additional 2 to 5 percent of the home purchase price to cover closing costs, which can include everything from a loan origination fee and attorney fees to homeowners association dues and taxes. On average, you’re looking at $6,000 to $17,000 in closing costs, based on the average sale price of a new home in mid-2015, according to the U.S. Census Bureau.

Escrow account: Many first-time home buyers don’t fully know what an escrow account is, despite its being mandatory with some mortgage agreements.

“The money that goes into the account is used by the lender to pay certain ongoing property-related expenses on the homeowner’s behalf, such as homeowner’s insurance premiums, private mortgage insurance (PMI) premiums and property taxes,” explains Andrea Browne of Kiplinger’s Personal Finance magazine.

Escrow accounts are mandatory for buyers who make a down payment of less than 20 percent and for buyers who take out certain types of loans, such as FHA loans. You may be asked to make an initial deposit into escrow at closing, and then you will pay extra to the mortgage lender each month in addition to your house payment. Without escrow, you will be responsible for paying all insurance and taxes on the home and property on your own throughout the year. With it, you and the lender are both protected because these critical homeownership expenses are sure to be paid in full and on time. Escrow is a blessing; you just have to be prepared for its upfront costs.

Home maintenance and repair: Even though you had an inspection done, things do need to be repaired after normal wear and tear. As a homeowner, you are responsible for upkeep of the property, including everything from mowing the grass to fixing the garbage disposal. While these aren’t costs you can expect to pay before you close on the house, they will arise inevitably and can be quite high, so having a nest egg for such purposes is a good idea.

Now you know around how much more in “surprise” costs and fees you will need to foot before moving into your dream home. Even if you weren’t expecting to pay this extra money, hopefully at least being aware ahead of time helps soften the blow.

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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.

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