Buying a home is obviously exciting, but it comes with a lot of hidden costs that you don’t think about. And I’m not talking about the unforeseen repairs you might have to make in the first year as a homeowner. I’m talking about all the costs BEFORE you even buy your home!
In addition to a down payment, you’ll need to have a couple hundred to thousands of dollars saved for miscellaneous costs. Let’s talk about each of these costs in depth.
What’s Ahead:
1. PMI
Private Mortgage Insurance (also known as PMI) is meant for those who don’t put a 20% downpayment on their home.
Since my husband and I were first-time homebuyers using an FHA loan, we only put a downpayment of 3.5%, meaning we’ll have PMI for the life our loan.
Why do you have to have PMI?
Well, because the bank views you as more of a lending risk because you didn’t pay a large amount upfront. The lender wants to make sure they’re covered in the event that you default on your mortgage.
While PMI is not an upfront cost of buying a home, it will affect your total monthly mortgage payment for the life of the loan.
2. Homeowners insurance
Homeowners insurance is a must, especially if you borrow from a lender. You need to be protected just in case there’s a fire, natural disaster, or another major event.
The price of your homeowner’ insurance will depend on many factors, including:
- The cost of rebuilding your home in the event something happens to it
- What your home is made of
- The pets you own (you’ll need higher insurance for breeds like Pitbulls and Rottweilers)
- What you want to be included in the coverage
- Marital status (married folks pay less, most of the time)
- Age of your home
- Proximity to fire stations
- Amenities (pools, hot tubs, etc.)
The average annual cost of homeowners insurance is $1,192, but again, this will vary greatly depending on where you live and the home you buy.
I tried Policygenius when I was looking for insurance because Policygenius compares all your homeowners rates in one place which I found to be super convenient. While there aren’t too many insurers in my area, I still believe I found the best deal.
3. Closing costs
Here’s where you’ll spend the majority of your money. When you go to the closing, the following will happen:
- The home’s title is transferred from the seller to you, the buyer
- You’ll pay the downpayment
- If you’ve taken out a loan for the mortgage (which you probably will), you’ll sign the official mortgage note and will officially finance your home
In short, you’ll spend about an hour or so signing a ton of paperwork and listening to the title officer explain every page, and then you’ll hand over the big check: your downpayment.
4. Earnest money
Earnest money is almost like a mini-downpayment. It the amount of money you put down to show the seller that you’re interested in the house. After a seller accepts your offer, you’ll pay their real estate agent whatever the agreed-upon earnest money.
In my case, it was $1,000. But again, that will vary depending on the price of the home you’re buying and how much interest there is in the house. If there are tons of offers, one with the biggest earnest money offer may be more likely to get their bid accepted.
The general rule of thumb when you’re deciding how much earnest money to offer is 1%-3% of the asking price. But when in doubt, check with your real estate agent.
5. Property taxes
This is another cost that will vary entirely depending on where you live. You can find the average tax rate of your state here.
When looking for a house, our loan officer told us to seriously look at the property taxes associated with each town we were considering.
The first town we looked at had property taxes that were $1,000 more than what we currently pay, so we quickly found out that taxes affected our decision much more than we ever thought it would.
6. Moving costs
When my husband and I moved into our home, we were convinced we were going to use movers – that is, until we started getting quotes from our local moving companies. We were moving just an hour away and had a small, one-bedroom apartment’s worth of belongings.
The lowest quote was almost $500 and the highest was around $700. We just couldn’t justify the expense. We wanted movers because we lived in a small third-floor walk-up with a very narrow staircase. But spending $500 after just closing on a home wasn’t in the cards.
Moving costs will obviously vary, but unless you’re moving down the road, you can expect to pay hundreds on movers. My husband and I opted for moving all of our stuff ourselves. So we rented a $100 U-haul and decided the move was our gym workout for a week.
7. Furniture
This isn’t a necessary cost when you’re moving, but from personal experience, it sucks when you sit on pillows and use boxes as your dining table. It’s likely that soon after you move into your new home, you’re going to want to buy furniture.
You can go the cheap route and get all your furniture at thrift stores, but if you’re looking to get long-lasting furniture, you’re going to be paying at least a couple hundred dollars on items like a couch, mattress, bedframe, and dining table. That can add up into the thousands fast, so make sure you add the cost of furniture to your moving budget.
8. Inspection costs
Not all states require a home inspection, but you’ll really want to get one. An inspection can tell you all the major issues with the home before you buy it. The seller isn’t always required to tell you about the issues the house has, so if you opt not to get an inspection, you could be walking into a disaster.
I paid for two home inspections when buying a house. One was a little over $250 and the other was just under $200. So my husband and I spent about $450 on inspections alone.
This was a cost I didn’t think about before the home buying process. Had I not gotten an inspection, my husband and I would have bought a house we really believed was the perfect home for us. But it also came with an entirely rotted foundation.
Inspection costs vary by state and the area you live in. They’re often done by private inspection companies, so make sure you get multiple quotes from multiple companies before you make a decision.
To find the average inspection cost in your state, look here.
9. Repair negotiations
After my husband and I had our home inspected, we found that there was a large crack in the foundation. Rather than put the money in ourselves right after we moved in, we asked the seller to fix the crack before we bought the home (our offer had already been accepted by this point).
She agreed, but she did tack on the cost of repairs to the cost of our loan. So in the end, we’ll end up paying for the repair, and we just get to pay it off over the life of the loan.
Know that we were lucky though. Not every seller is willing to fix major issues like this. So if you find a house you love, but the seller won’t fix it up, make sure you know how much you’ll have to spend on repairs when you move in.
10. HOAs
HOA fees, or homeowners association fees, are typically thought of only as condo fees since the building and surrounding land are maintained by other companies, rather than the condo owners.
But there are a growing number of suburban neighborhoods that are also saddling residents with HOA fees. Again, you’ll get services for these fees – typically these involve lawn and building maintenance.
HOA fees have a large range, from small monthly payments to payments ranging in the thousands annually.
Summary
Buying a home has many hidden costs. There’s a lot more to it than finding a real estate agent and making an offer. You’ll need to consider the upfront costs and long-term costs, and decide if the true cost of homeownership is right for you.
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