If you’re considering buying a house, you’ll want to ensure you’re aware of all the hidden costs that come along with it.
Your loan officer should tell you about all the hidden costs, but a lot of the time, they assume you already know.
That’s why we composed this guide so you can be prepared with all potential hidden costs when buying a house.
To make sure you don’t make this mistake, we made a list of 9 hidden costs when buying a home:
1. Homeowners Association Fees
You need to verify if your new house is part of a homeowners association. If it is, you’ll be required to pay for the fees.
There’s no way around it, you’ll have to pay the fees and follow all the guidelines associated with the homeowner’s association. Some HOAs offer amenities.
Amenities can include community pools, parks, and more. HOAs will occasionally also use your fees to pay for utilities.
Every Homeowners association is different, so the feels will range all over the place. On average, the HOA fees are $100-$500 per year.
Another determining factor in your homeowners association fee is the size of your property. Usually if your house or land is larger than the rest of the neighborhood, you’ll end up paying a little more.
There are many pros and cons of homeowners associations and its important to weigh the two before you make a decision. One one hand, managing your association can be a vast time saver and they will likely provide aid in completing paperwork. However, on the other hand, the fees may add up over time and there is limited control of what can be changed about your home.
A lot of people are completely unaware of HOAs when buying a new home. Now, you won’t be caught off guard by the many hidden costs when buying a home.
2. Closing Costs
On your closing date, you’ll be asked for a down payment & additional costs to get the property in your name. The down payment isn’t the only cost you’ll need when you sign the papers. Closing costs make up several of the hidden costs when buying a house. Some of these fees consist of:
- Homeowners Insurance
- Loan Origination Fees
- Property Taxes
- Title Insurance
- Closing / Escrow Fees
- Apprasial Fees
- Miscellaneous Fees
These closing costs may seem manageable individually, but together they can really add up. To cover them, you’ll need to set aside a few thousand dollars.
Your down payment won’t cover closing costs. Surprisingly, a lot of people are unaware of that. That’s why we categorized closing costs and broke down some of the individual closing costs as hidden costs when buying a house.
3. Emergency Repairs
The average person has many responsibilities that their landlord would take care of. When you own a home, expenses are at the homeowner’s discretion. When there’s an emergency plumbing issue, for example, your responsibility is to cover the costs.
Unexpected damage can occur at any time. It could happen the day you officially move into your new home. That’s why it’s a good idea to prepare savings for any house emergencies that may occur.
An example of this is the water heater or furnace going out. If that’s the case, you’ll be looking at a $1000-$5000 unexpected bill.
Typical home emergencies you may have to tackle are:
- Broken Furnance
- Broken AC system
- Burst Pipes
- Broken Water Heater
- Collapsed Roof
This one gets typically missed because people don’t generally plan for these types of emergencies. You’re about to purchase a new home, so it’s smart to plan for unwanted emergency repairs. You don’t want to be caught off guard by these hidden costs when buying a house.
4. Home Appraisal
Before you purchase a home, a valuation will be conducted to determine the true market value. A licensed 3rd party appraiser will asses the condition of your property, any structural integrity issues, or health & safety hazards. They’ll also look for any visible defects on the building.
The property appraisal is essential for both parties. It provides security to the buyer by ensuring the property won’t cost too much. To protect against risks, it also confirms to the lender that they’ve loaned enough money.
The lender may have ordered the appraisal, but you will have to pay for it as a part of your closing costs. The average cost of a home appraisal typically ranges from $300 to $400 for a single-family residence but appraisals will vary on the condition, size, location, and few other factors.
Any number of these factors can increase the price of an appraisal. A large & expansive property in a remote location is going to cost a lot more to appraise. The same goes for a home that has unique features, which make it hard to compare against other homes on the market.
After learning about home appraisals, you’ll have 1 less hidden costs when buying a house.
5. Home Inspection
It’s important to be aware of the difference between an appraisal, a final walkthrough, and a home inspection. We all know the significance of an appraisal. An appraisal sets a baseline for the value of a home. When it comes to a final walkthrough, that is when you go from room to room and make sure there are no maintenance issues left in your new home. A home inspection evaluates the current condition of the property.
A typical home inspection usually costs $300-$500. The larger the home, the more likely it’s going to cost more. This is a large amount of money that catches people by surprise because it’s an one of the many hidden costs when buying a house that’s foreign to new home buyers.
Getting a home inspection can be quite expensive, but you may find that the report provides valuable insight into the home you’re trying to buy. Not only does this report help protect your investment in your future property, but it also can provide peace of mind when making such an important purchase.
If you identify major damage or defects that have a significant effect on the property, it could impact the terms of the sale or lead to negotiations with the home seller.
Even if the home inspection comes back flawless, there still might be cosmetic changes that you might want to plan for.
This is one of the few hidden costs when buying a house that you’ll need to pay for before you close on your home.
6. Homeowners Insurance
Homeowners Insurance helps protect you from expensive bills that can come with natural disasters or theft. It also covers you if someone gets hurt on your property.
Whilst home insurance policies offer different levels of coverage, the cost will depend on which level of coverage you need. According to statistical information from 2017, the average yearly premiums for home insurance was $1,211.
Not many people know this, but even if you don’t purchase house insurance, your lender can purchase it for you and bill you for it. Depending on your loan, it’s more than likely required anyways.
When it comes to purchasing homeowner’s insurance, you might think the cheapest option is good enough, but if your area faces a higher risk of fire or flooding, more extensive coverage may be worth it to protect your investment.
We recommend to always insure your assets, including your most important one, your home. You don’t surprise hidden costs on top of all the other hidden costs when buying a house.
You’ll want to include all the home maintenance when you purchase your home. Some maintenance routines are upfront, some won’t be until later on.
You’ll want to ensure you have the right tools to do the maintenance yourself or have enough funds to pay someone else to do them. Here are some of the maintenance routines that come up for homeowners that can be hidden costs when buying a home:
- Fixing appliances
- Mowing The Lawn
- Raking Leaves
- Cleaning Gutters
- Snowplowing Driveway
- Cleaning The Carpet
8. Property Taxes
The amount one pays in property taxes is dependent both on the tax rate in their area and the value of the property. One’s tax bill would be a combination of a general rate as well as what they owed for their particular property.
Your municipality’s website will have all the information for your area’s property tax rate.
If your home loan includes an escrow account, then your monthly payments will include the fees for property taxes. If you don’t have an escrow account, then you’ll have to pay your property taxes directly to your local tax office.
Property taxes are one of the main hidden costs when buying a house that surprises people. Now, you’ll be prepared with your new home.
9. Loan Origination Fee
The loan origination fee is the cost for your mortgage lender to setup your home loan.
This fee can potentially be split up in two sections. The processing fee and the underwriter fee. This varies from lender to lender.
The average loan origination fee varies between 0.5% and 1% of the loan amount.
Mortgages with no origination fee can save you money in closing costs but they do come with the trade-off of higher interest rates.
The loan origination fee is usually attached to your closing costs, but it’s a great way to know how and why you’re paying a certain amount in closings. This will help you understand the hidden costs when buying a house.
Conclusion On Hidden Costs When Buying A House
The purchase of a home is not without its hidden costs. You’ll need to deal with closing costs and all the other expenses that come with buying a new house. By preparing yourself for all the hidden costs when buying a house, you’ll be at a financial advantage.
In addition to your down payment and mortgage payments, you’ll also have monthly utility bills, homeowners insurance, and property taxes to deal with. And depending on where you live, there may be a monthly HOA fee as well.
The true cost of being a homeowner is more than just your mortgage. There are some unavoidable costs that will become regular monthly expenses, while other ones may sneak up on you – these include things like accidental damage.
One important step to take when buying your next home is considering all the money you’ll spend on things like furniture & appliance repairs, as well as plumbing or electrical system replacements. You can avoid costly hidden costs when buying a house by being proactive about those changes now.
Once you’re aware of all the hidden costs when buying a home, you might want to start to look for extra ways to earn money. If that’s the case, check out our website for side hustle & business ideas.