What are the Hidden Costs of Buying a Home?

buying home.jpegBuying a home is one of the biggest financial investments you can make. Unfortunately, the price you see on the ‘for sale’ sign isn’t all you’ll be paying. More often than not, hidden fees will appear where you’re least expecting. Here is a guide on the possible hidden fees you may encounter while making a home purchase so that you can be a more informed consumer!

1) Good Faith Deposit

This $500 to $1,000 in “earnest money” basically states your intention to buy a home. It’s a security deposit with a bit of a cooling-off period for those who get nervous about their purchase, but gets folded into the down payment if you actually go through with buying the house. Know that the check doesn’t get cashed right away and may disappear altogether if you back out after the “cooling-off period”.

2) Homeowners Association Fees

If you’ve bought a condominium — or a home, in some communities — you’re going to have condo or homeowner association fees to cover the cost of maintaining and repairing common areas. The pools, lobby, landscaping, and elevators that enticed you into buying a home in the first place can cost hundreds to thousands of dollars a year.

3) Private Mortgage Insurance

Couldn’t come up with a 20% down payment? Your lender now views you as a foreclosure risk and will slap 0.3% to 1.5% onto the cost of a mortgage to protect themselves. It won’t go away until the amount of mortgage owed drops to 80% of the home’s appraised value.

4) Mortgage Interest

If all you’re doing to calculate mortgage interest is checking the rate on Freddie Mac, you’re in for a surprise. Your debt, income, down payment, and credit score will also factor in to determine how many points you have working for or against you.

5) Mortgage Application Fees

Yep, you’re going to be charged just for applying for a mortgage, and that fee can balloon to $500. Make sure you have your credit in order, as that’s a lot of money to waste on a declined application.

6) Credit Report Fees

While you are entitled to a free copy of your credit report every year, mortgage companies have to pay for it. They pass that cost on, and it can set you back $25 to $100.

7) Underwriting Fee

You’re being charged not only to have your mortgage application reviewed (unless you’re applying for a Federal Housing Administration loan), but also for a flood certification fee, commitment fee, documentation preparation fee, wire transfer fee, processing fee, and tax service fee, often well into the four figures.

8) Origination/Service Fee

Another fee a potential homebuyer is charged simply for dealing with a mortgage provider. Sometimes it’s a flat fee, but often an origination or service fee is 1% to 2% of the cost of the loan.

9) Appraisal Fee

An appraisal determines the value of the home and loan-to-value ratio of the mortgage. The cost of the work has to be paid up front, since an appraiser needs to be paid regardless of whether you buy a home. Expect to pay around $300 to $400.

10) Lock Fee

It’s great that a mortgage provider wants to lock you into the best rate possible, but don’t think they’re happy about missing out on a higher rate. A rate lock on a $250,000 mortgage, for instance, could end up costing you 1% of the loan ($2,500).

11) Title Services

Someone has to search public records for your new home. Then there are notary fees for the person witnessing your signature on documents, government filing fees, and other title-related fees. Set aside between $150 and $400 for these services.

12) Survey Costs

To determine the size and dimensions of your property, you’ll need a survey. The cost of surveying property hovers around $463, but can be as expensive as $950.

13) Closing Costs

Attorney fees, title insurance, property transfer taxes: All fall under the heading of closing costs. They also vary widely by location, with some of the costlier cities in the country hitting home buyers around $7,500 or more in closing costs, while some areas could be closer to $3,000.

14) Tax Service Fee

There are all sorts of little charges hidden in those closing costs, including a roughly $50 charge just to make sure all of a property’s tax payments are up to date. It may seem like a hassle, but so is buying a home with a tax lien on it.

15) Escrow

You aren’t just paying off a mortgage with monthly mortgage payments. If you’re paying insurance, PMI, and property taxes, you’ll be utilizing an escrow account that will require an initial escrow deposit. That amount will be determined by the cost of your insurance, taxes, and other payments.

16) Extra Inspections

You’re required to have a general home inspection, but if you have specific concerns, you may have to pay for specialized inspections. Pests, lead-based paint, chimneys, easements, foundations, the roof, soil stability, radon, methane, asbestos, well water, and other concerns often require a la carte inspections to address.

17) Latent Defects

A new home may have flimsy siding, wonky floors, inadequate waterproofing, or other problems — and though sellers only have to disclose less-than-obvious defects if they know about them, there are ways to duck some of that responsibility. Research a builder’s reputation and don’t do something foolish like stint on inspections.

18) Upgrades

Be careful when touring a model home, since features there often won’t be included in a less-expensive newly built base model. If you see a grand foyer, granite countertops, hardwood floors, or especially large bathrooms, ask if they are included in the base price.

19) A Builder’s Financing Plan

When buying a newly built home, you are by no means obligated to take the financing offered by a builder. In many cases, it is far from the best offer available, so consider all mortgage options before moving forward and avoid an unnecessary cost of buying.

20) Chimneys

If your house comes with a functional fireplace or wood stove, the best-case scenario has you cleaning it annually for an average of $240 a pop. If it needs to be repointed, rebuilt, or lined, that one-time cost can run into the thousands.

21) Wells

Are you off the grid and on well water? Did the previous owner dig a well just for irrigation? In either case you have a well to maintain, and that costs money. It may be less than the cost of municipal water, but maintenance is harder to do without a paid crew and can get really expensive if you don’t know your way around a well pump and keep running the well dry.

22) Septic Tanks

Hey, they’re still out there. Not hooking into a sewer system can save a bundle, and septic tanks also cost relatively little to maintain every few years — but a lot to repair if you don’t do proper maintenance.

23) Sprinkler System

Bet that seemed like a great feature during the home-buying process, too. But simple maintenance comes with a $115 average price tag that only gets higher if you don’t figure out how to do simple winterization yourself.

24) Insulation

You can poke around the attic and see what kind of insulation you’re dealing with in your home, but you won’t know exactly how well-insulated the place is until winter. If it’s chilly and drafty, the costs of insulation can add up more quickly than you can say “Do we really have to open that wall?”

Conclusion

We hope this guide helps you to identify which hidden fees you may encounter when purchasing a home!

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