You’ve spent the past few years cleaning up your credit and stashing away enough cash to qualify for your dream home.
And now, the time has come to seal the deal. But there’s only one problem: you only accounted for the monthly principal, interest, and property taxes, and overlooked a slew of other costs. Unfortunately, you’re forced to walk away and find more cost-efficient options.
This isn’t all that uncommon; many prospective homeowners are unprepared for the costs that come up at the closing table. Here are seven hidden costs you should be aware of before buying your first house.
1. Property appraisal and inspection fees
Unless you’re purchasing a new build in a development, be prepared to fork over a few hundred dollars to have the property evaluated by an appraiser and inspector to confirm the asking price is fair and the home is free of structural defects.
2. Closing costs
Along with a hefty down payment, you’ll still be responsible for closing costs — which the seller may or may not decide to cover. These range between two and five percent of the purchase price. To put things into perspective, expect to pay between $4,000 and $10,000 on closing costs for a $200,000 home. The real estate site Zillow features a comprehensive list of closing costs.
3. PMI and Homeowner’s Insurance
Thought you were getting ahead by putting a small amount down and banking the rest? Well, if the down payment was less than 20 percent, you’ll have to pay Private Mortgage Insurance (PMI) to protect the lender against the risk of default. According to Bankrate, it’s around “0.3 percent to 1.15 percent of the original loan amount per year.”
And standard homeowner’s insurance is another piece of the escrow puzzle. Since it typically excludes sinkhole, flood, or natural disaster coverage, you’ll have to add it on to your policy.
4. Attorney fees
Buying your first home? The verbiage in the contract can be overwhelming to say the least, so it may be necessary to consult with an attorney for your protection and peace of mind.
5. Property liens
Are you moving into a home with liens against it? If so, you may have to pay a hefty sum of cash to the property appraiser for unpaid taxes, or write a check to the homeowner’s association to clear any liens and make the account current. This could cost you well into the thousands, making the great deal you got on the home a little less exciting.
6. Moving expenses
This is arguably one of the most underestimated expenses associated with buying a house. Among the list of costs you’ll have to consider are the moving truck, utility connection expenses, furniture purchases, and unexpected repairs.
7. HOA and CDD fees
At move-in, you generally have an idea how much HOA fees will set you back each month. But what about the unexpected rate increases? When the market went south a few years back, for example, the HOA fees in my community soared to astronomical heights. The increase was due to the association losing money from homeowners going through foreclosure. Luckily, we didn’t have CDD fees to tack on to the monthly bill.
Bottom line: when in the market for a new home, do your homework first — your wallet will thank you!
Have you purchased a house recently? What fees surprised you the most?