No one should be surprised that buying a home is a big decision and financial commitment. However, people are often shocked by just how numerous the costs are and how much it can take to actually get your hands on some property. Here, we’re going to look at a range of the hidden and more broadly advertised costs you might have to expect when buying a property.
1. Down Payment
In order to access a loan, most people are going to have to put down a down payment, which is effectively a way of securing the loan to some degree and making it clear that you are financially prepared to take it on. The average down payment is between 15 to 20% but the specifics will depend on a range of things, including what kind of loans are available to you. Saving up a large down payment can result in low mortgage payments and interest rates. However, if you’re looking to get on the property ladder quickly, you might not have time to save up a large down payment, which may mean longer and more expensive loan terms.
2. Home Appraisal Costs
At some point, after having made your initial offer, an appraisal is going to be performed to make sure that you get the home’s full market value. Sometimes, this cost will be waived, but you want the appraisal to go ahead. It usually involves a third party coming in to assess the home’s condition, how structurally sound it is, as well as simply making sure that it is the type of house and it is the size that it is being advertised as. Between this appraisal and local land sale records, this is how you typically find out the baseline value of the home. Your lender is likely to be the one to order the appraisal, so you may not have to think about it, but they may charge you $300 or more for the service.
3. Home Inspection Fees
It might sound like getting your home inspected is just a repeat of having it appraised, but there is value to this specific step. Rather than letting the lender do this, it’s recommended by many real estate agents that you hire a home inspector, yourself. The purpose of the home inspector is to take a closer look at the details of the home to let you know about any issues, damage, safety problems, or any other factors that you might want to know before you pay for the home and usually happens after the purchase agreement has been signed. This typically costs upwards of $300, and the costs can change depending on how large or expensive the home is.
4. Land Survey Costs
If you’re buying property, you are also buying land. Depending on how much land there might be surrounding the property itself, you might find yourself looking to pay for a land survey, as well. Not only will a land survey help you learn about the condition of the land but it will (perhaps most importantly) let you know exactly what you do and what you don’t own. Beyond the property itself, various parties own the land and it’s often worth getting to know where your own land begins and where someone else’s begins. Aside from getting to know the property lines, a land survey will also let you know about any public right of way through your land, any potential encroachment, and more.
5. Homeowner’s Insurance Premiums
Every homeowner needs insurance. It’s a form of financial protection to make sure that you’re able to cover the costs of any major repairs caused by major harmful events, such as fire damage, weather damage, and even theft. However, many may not be aware that you need to have homeowner’s insurance secured before you buy the home. Typically, your lender will ask you for proof of homeowner’s insurance before they let you borrow money to buy the home. Even if you do not purchase homeowner’s insurance, the lender may in fact purchase it as part of the loan and then bill you for it. For that reason, it is a better idea to look at the homeowner’s insurance market and find the deal that you want rather than being forced into one.
6. Mortgage Protection Insurance
Do not get mortgage protection insurance confused with the last point. This is a different kind of insurance than homeowner’s insurance. Specifically, this is a type of insurance that is supposed to offer some protection for the loan itself, but it’s protection for the lender, rather than being for you. Simply put, if you are unable to follow through on the loan for any reason, mortgage protection insurance is there to make sure that the lender and recoup many of the costs. However, it is a controversial kind of insurance for the simple reason that lenders have been adding it to the fees of taking out a loan without getting permission from the borrower. As such, you can find out how to remove mortgage insurance if you do not want it. Unlike homeowner’s insurance, mortgage protection insurance is far from mandatory.
7. Closing Costs
Once you have the deal arranged and are ready to buy your home, you are going to find yourself suddenly facing a bill full of closing costs. Which closing costs you have to pay will depend largely on what lender you are borrowing from, but it is wise to expect to pay some no matter what. These can include a closing or escrow fee paid to an estate agent, loan origination fees, mortgage points to help lower the interest rate on the home, as well as costs for certain services, such as pest inspection fees and the like. Some of the fees we have already mentioned tend to be included in your closing fees.
8. Lawyer’s Fees
Whether or not you have to pay an attorney to help you with your home purchase will depend largely on what state that you are in. However, if you are in a state that requires you have an attorney to carry out the process known as conveyancing, then you are going to have to pay them. This means having them review the closing documents as well as having them confirm that the property deeds and rights do pass over to you. Even in states where working with a real estate attorney is not mandatory, some people prefer to pay for this simply to have the security of knowing that they do own their own home.
9. Property Taxes
Anyone who owns the property is going to have to pay taxes on it. There is no getting away from that. What’s more, property tax is likely to continue increasing the longer you live in a property and, in general, it rises steadily across the board. How much you can expect to pay in property tax will depend on what state that you live in, however. In some states, property taxes can go as low as 0.18% for Louisiana and 0.33% for Alaska, to being as high as 1.89% in New Jersey and 1.86% in New Hampshire. This percentage represents a portion of the value of the home that you will have to pay in taxes for the property every year.
10. First Repairs on the Home
Though hopefully all the inspections and appraisals should highlight the risks you take on when buying a home, it’s always wise to expect that you’re going to have to pay for some emergency repairs not too long after moving in there. How you handle these repairs will also influence the costs. Some might prefer the security of hiring contractors to make sure that any necessary repairs are made in a way that prevents you from having to spend money in the future. However, if you consider yourself handy, then it will cost far less to get the tools and materials and to fix any issues yourself. Nevertheless, you want to make sure that your repairs are reliable enough to last, too.
11. Homeowner’s Association Fees
Before you move into any home, you should check whether you’re buying a property located in a community or homeowner’s association (HOA). If you are in such an area, then not only are you going to be beholden to the rules of that HOA, but you are also going to have to pay a fee as part of your membership. Usually, this fee covers the maintenance of the area and can come with some perks, such as access to swimming pools and clubhouses, as well as having the garden of your home maintained for you. However, the specifics of each homeowner’s association are particular to them, so it’s essential to do your own research on the matter.
You should make sure that your budget is ready for all of the costs named above. Otherwise, you can find yourself stuck on the property ladder before you’ve even had the chance to take one-step up.