If you’re getting ready to buy a home, you’ve probably been saving for your down payment and are accounting for your new mortgage loan and the monthly payments that go along with it. But it might actually be the smaller, surprise expenses that cause the most stress. They tend to catch many homebuyers off-guard and can add up when all is said and done.
Here’s a look at the unforeseen costs that surprise homebuyers most often, so you can be best prepared.
Inspections & Appraisals
Many mortgage lenders require a professional home inspection before they will approve funding. Some may also require an updated appraisal on the property. Each of these reports costs a few hundred dollars, depending on your area and the size of your home, and unless you negotiate otherwise, you’ll be on the hook for the bill as the buyer.
In certain markets, you could request that a seller cover either (or both) of these expenses. However, more often than not, they’re the responsibility of the buyer.
Closing day is exciting and so is the meeting at which your purchase transaction actually takes place (hello, new keys!). But unless you’ve bought a home before, you might not know that you’ll be expected to write a pretty significant check at closing.
Closing costs include a number of expenses, such as:
- Origination and/or underwriting fees from your mortgage lender
- Mortgage points purchased
- Home appraisal fee
- Home/pest inspection fees
- Property survey
- Title insurance
- Settlement/escrow fee
- Title investigation
- Notary fees
- Attorney fees
- Transfer tax
- Mortgage premiums (PMI)
- Home warranty
- Prepaid interest
You may be subject to some or all of these fees, though a few of them can be negotiated. Talk to your lender about these as early as possible! They will be able to estimate the total of these fees beforehand, but there is no guarantee they’ll be correct on closing day. You could see a 5-10% increase in the total, so keep that in mind.
Insurance and Taxes
When calculating your mortgage payments, did you remember to include property tax payments? These can easily be hundreds or sometimes thousands of dollars on top of your monthly loan contribution and cannot be forgotten when budgeting for a home.
Many lenders will collect property taxes along with your monthly mortgage payment, holding the funds in escrow until annual taxes are due. They may also collect your homeowner’s insurance premiums at the same time.
Homeowner’s insurance is required by most all mortgage lenders. Policy premiums will depend on your home and the coverage options chosen, though the U.S. average is $1,445 annually.
Increased Utility Bills
If you’re moving from a smaller home, townhome, or apartment into a single-family home, you might not realize just how much your utility bills can climb. Higher ceilings, additional windows, multiple levels, gas versus electric, older appliances, an added A/C unit - these can all contribute to significant costs each month.
Even if you’re moving into a home comparable to where you live now, it’s smart to assume that your utilities will go up. If you’re surprised and they remain the same (or even go down), well…lucky you!
The Little Things
There are plenty of small expenses that can add up when buying a new home, which should be included in your budget.
First, you may want to replace your locks. You don’t know how many keys are floating around or who could have access to your home. Having the entire house rekeyed, or all locks switched out, is a wise decision. Expect this to cost a few hundred dollars.
Then there are moving expenses. The cheapest option is to do it yourself, though you’ll still need to worry about boxes, paying for gas and truck rentals, etc. You can also hire movers, though your cost will depend on your belongings and how extensive you want the moving service to be.
Lastly, you may incur transfer fees for various services when you move. Security systems, cable, and internet providers are all notorious for this.
Before buying a home, try to remember all of these unexpected costs. Consider creating a separate short-term savings account for these kinds of costs, much like an emergency fund. By setting aside funds for them in advance, you’ll save yourself from a budget-breaking surprise come moving day.