Hidden Home Expenses Consumers Need to Know About
Owning a home is the American dream. It allows a person to do whatever they want within the confines of their own space. No more rules about animals, paint colors or improvements (unless where you live has a homeowners association). There is a freedom that comes with home ownership, but is that freedom more than the sticker price? Are there hidden home expenses you may have to pay?
What many consumers do not realize is when you are ready to put your property on the market or when you start looking for a home to purchase, there may be some hidden home expenses that can catch both home buyers and homeowners off guard. If you know the potential fees upfront, you can more easily budget for them, or at the very least be prepared to tackle them when the time comes.
The Cost of Buying a Home
Many people head out on the house hunt with a sticker price in mind. They set their budget and focus on that amount. Some people are willing to go over their allotted amount just to get into the perfect home. However, think of home ownership like owning a barn. The barn needs insurance, upkeep, pest control, new barn doors periodically, and other means to keep it in top shape. While the barn might have cost $10,000 new, in the long run, it will cost much more. The same theory goes with buying a house. Though it may cost $200,000 initially, eventually it is going to cost a whole lot more.
Let’s assume that the perfect house costs $225,000. An offer of $210,000 was placed and accepted. Getting the sellers to shave $15,000 off the sticker price is pretty good. However, there are many things that have not been considered. With any new home offer comes inspections, closing costs, insurance, and surveys. Suddenly, that home that was such a good deal is not longer such a manageable amount. Here are seven hidden home expenses that many home buyers and sellers do not initially consider.
Hidden Cost #1 – The Home Inspection
Most mortgage insurers will require a home inspection to be performed. These inspections are hundreds of dollars. In the cases where an inspection is not required, it is still wise to have it completed. Paying a few hundred dollars to avoid a train wreck is money well spent.
While home inspections are most often accomplished by buyers-to-be, it can make great sense for homeowners to get their own inspection performed before putting their home on the market. That way they have time to either make repairs or come up with a solid home negotiation strategy for when the home goes under contract.
A few other optional inspections you may want to have performed include:
- Chimney – Checks flue liners, brick, leaks, and makes sure smoke discharge is correct.
- Lead Based Paint – Homes built in 1978 or before may contain lead.
- Mold – Checks for mold presence via an air quality test.
- Radon Test – A mitigation specialist can determine if you have unsafe radon levels.
- Septic Tank – To ensure it is working as designed and is not full.
- Wood Destroying Pests – Primarily checks for termites but certain beetles can cause wood issues too.
Hidden Cost #2 – Surveys
When there is land involved, especially many acres, property survey costs often come into play. The lender may want a professional survey done so that the boundaries of the property lines are clear.
These professional surveys are another few hundred bucks out of your pocket. However, it is money well spent and can keep you out of hot water if an encroachment or setback issue arises.
Hidden Cost #3 – Property Taxes
Most people know that they are going to be required to pay taxes on their new home. However, many locations require taxes to be prepaid for the first year at closing. In some instances you can elect to pay it yourself at the end of the year. Most often, property taxes are included in your monthly mortgage payment.
The taxes are based on the assessed value of the property plus any additional state or local taxes that are applicable. Property tax cover the entire year and is paid whether you own your home outright or have a mortgage.
Hidden Cost #4 – Escrow Costs
Escrow can be a very confusing part of the whole home buying process. Escrow costs are upfront when the lending process starts. However, there are additional escrow costs at the end too. If the down payment on the home is less than 20 percent, the lender may require the use of escrow. Most people do not understand the whole escrow process, so they do not figure the costs into their budget.
A few of the potential escrow costs you may face include:
- Attorney Fees – Not required in all states.
- Credit Report – Cannot be a consumer pulled report.
- Closing Fee – Paid to whomever performs the closing (i.e. attorney, escrow company, title company, etc.)
- Courier Fee – Covers transportation costs associated with completing the loan
- Hazards Disclosure Report – Not required in all states.
- Pre-Paid Interest – Pays interest through the first of the next month.
- Processing Fees – Paid to lender for processing your information on the loan application.
- Transfer Fee – For transfer of title from seller to buyer.
Hidden Cost #5 – Miscellaneous Fees
Most buyers cannot wait to get to the closing table. However, they will be charged a lot of fees to add to their closing costs. The fees include but are not limited to the following:
- Appraisals – A home appraisal is done to get the value of the home for the lender.
- Credit Report – It costs money to pull a credit report. The lender passes on the fee to the buyer.
- Flood Protection – If the home is in a flood zone, there is a fee for government tracking purposes.
- HOA Dues – If your home is part of a homeowners association, you may have to pay periodic dues.
- Loan Origination Fee – Processing a loan application is costly. If a loan is around $100,000 and has an interest rate of 3.5 percent without any points, expect this fee to be around $875.
- Recording Costs – The state and local government will charge for recording the mortgage, deed, and other loan documents.
- Taxes – The tax service fees ensures that all real estate taxes are paid on the home and it is up to date.
- Title Services – The title of the home must be transferred and cleared with the title department.
- Utility Charges – You will need to pay any fees associated with having your utilities turned-on or switched over.
These fees are routine and completely legal. There is little you can do to get out of them.
Hidden Cost #6 – Insurance
Just as businesses need business insurance, homeowners need homeowners insurance. While most homeowners know that they will need this coverage, what they do not expect is the massive amount that some companies want down. If you put less than 20 percent down on your new home, your lender may require you to also have mortgage insurance.
While there are a few companies that will do a month to month plan, many want quarterly, semi-annually, or annual policies. Having the taxes and insurance in the mortgage payment is wise, but for those who pay it separately, get ready to shell out some money.
Hidden Cost #7 – Moving Expenses
Now that the loan is all settled, moving costs are another considerable expense. It is very costly to move these days. Renting a moving truck will set a person back a few hundred dollars, not to mention all the utility deposits and various other expenses.
If a moving company is needed, the cost can be a few thousand dollars. It is better to set back money for moving costs so that there is no shock in the end.
The Hidden Costs of Buying a Home
Some people refer to owning a home as a money pit. Thankfully, all these hidden costs are there for the buyer’s protection. Without the inspections and all the other costs, purchasing a property could be a disaster waiting to happen. While no one wants to part with their money unnecessarily, many of the hidden home expenses are necessary and well worth the expense.
The inspections prevent against buying a home with termites, mold problems, or other unforeseen issues. It is money well spent. The title check ensures there are no outstanding liens against the home from previous owners. All these little services are just ensuring that the American dream does not turn into a nightmare.
More Home Expense Resources
Home Buying Expenses and additional details for all buyers via Bill Gassett
Home Buying Fees by Kyle Hiscock
Buyer & Seller Real Estate Tips on Flipboard