Costs of buying: Hidden costs and unexpected expenses of buying a home
A lot of money goes into buying a home, more than just the purchase price. Be aware of some unexpected costs associated with the home buying process and there will be fewer surprises along the way.
While many people know they should have a down payment in order to buy a home, this is far from the only expense you’ll face. Here are some costs you may not expect when buying a home, especially if it’s your first time:
• Inspection fees — Along with a standard home inspection, you may need to pay for a pest or radon inspection.
• Appraisal fees — Before you close, you must have an appraisal done on the house to determine the value of the home.
• Closing costs — Can be anywhere from 2-4% of the mortgage balance.
• Property taxes — Rates vary, but can be between 0.2% and 4% of the home value.
• Insurance — As a homeowner, you are required to have homeowners insurance.
• Homeowners Association (HOA) fees — Can be a monthly or quarterly fee if you live in a neighborhood or building that has a homeowners association.
• Utility bills — It’s important to figure out what you are responsible for paying for in your new home. Get an estimate of the costs from the seller if possible.
• Lawn care — Whether you pay someone to maintain your lawn, or you do it yourself there will be a cost, as equipment can be expensive.
• Maintenance and repairs — While certain maintenance issues can be predicted, unexpected repairs such as replacing a toilet cannot be budgeted for and are not uncommon when you own a home.
• Earnest money — The money you put down to show the seller that you are serious about the house. This cost can be rolled into your closing costs if you move forward with the purchase.
So how do you plan ahead for these costs? Shoubert, a mortgage banker, explains the value of the Good Faith Estimate: “The Good Faith Estimate gives you a detailed breakdown of the settlement charges associated with your loan, and also gives you a breakdown of your interest rate, your monthly payment, and most important. That would give you your final mortgage payment as well, which is really important to know at the beginning of the stages as to what your monthly payment would be, just to make sure that you are on the same page with your mortgage banker.”
RACQUEL: There’s things like your down payment, there’s closing costs, there’s inspections, there’s appraisals, there’s lot of things that are required in purchasing the home.
TIANA: Or you know…
RONALD: Earnest money
TIANA: Right, the earnest money that you have, there’s sometimes with certain loans you have to put down earnest money or just even the types of things. I don’t, I hardly ever deal in cash, but having to actually go to the bank and get a cashier’s check, that’s a process that I just kind of wasn’t familiar with.
TOM: A good faith estimate is something that’s delivered at the time of application. It breaks down line by line the lender fees, the third party fees, basically any costs that the borrower is going to incur throughout the entire loan process.
SHOUBERT: The Good Faith Estimate gives you a detailed breakdown of the settlement charges associated with your loan, and also gives you a breakdown of your interest rate, your monthly payment.
SHOUBERT: That would give you your final mortgage payment as well, which is really important to know at the beginning of the stages as to what your monthly payment would be, just to make sure that you are on the same page with your mortgage banker.