14 hidden costs to factor in when buying a home

It’s not a secret that buying a house is expensive. What may be a secret to some is that the price of the home you’re buying isn’t the only one about to hit your wallet hard. 

Keep reading to uncover the hidden costs of buying a home so you can budget accordingly to prevent becoming house poor and brace your wallet for the many expenses that come with buying and owning a home. 

Hidden costs during the homebuying process

When you’re on the hunt for a home, it’s fair if your main point of focus is the home prices. We wish we could tell you that was the only expense you need to save for. Before you say yes to your dream house, these are the other costs to factor in when buying a house.

1. Home appraisal

If you need a mortgage loan to finance the purchase of your house, the lender will require you to pay for a home appraisal. Even if you plan to pay cash, it’s a good idea to book an appraisal so you have a current assessment of the home’s market value. Appraisers look at a home’s condition to determine if there are any safety hazards or structural issues in order to assess the value of the home. Home appraisals typically cost around $300 or $400. 

2. Home inspection

While a home inspection is another upfront cost to tackle, it can actually save you a lot of money in the long run. You will need to pay $300 to $500 for a home inspection that will reveal if there are any major issues or concerns with the home. If the inspection reveals problems with the home, you can negotiate with the seller to have them fix the issues or to lower their sale price. You may also decide to walk away from the sale if the issue isn’t one you want to deal with.  

3. Loan origination fee

Some mortgage lenders will charge a loan origination fee to set up your home loan. Every lender has their own process for how they charge fees, so you may see some lenders split up the origination fee into a processing fee (for reviewing your application and assembling documentation) and an underwriting fee (to determine if you qualify for the mortgage loan). 

Lenders base loan origination fees on a certain percentage (usually between 0.5% and 1%) of your total loan amount. If you apply for a $500,000 mortgage and they charge a 1% origination fee, then you’ll need to pay $5,000. 

If you come across a lender that doesn’t charge a loan origination fee, take a look at how much interest they charge. More often than not, lenders that don’t charge loan origination fees charge higher interest rates which may cost you more in the long run. 

4. Earnest money

When you buy a home, you’ll pay “earnest money” up front after a seller approves your offer and before you jump through all the hoops required to buy a home. The earnest money deposit shows the seller that you’re serious about your plans to purchase their property. Once the transaction goes through, you get your earnest money back. If you choose to back out of the deal, you may not get your earnest money back. 

Your contract will outline the rules about your deposit, but earnest money is usually 1% to 3% of the home’s sale price. 

5. Property taxes

While your property tax is an ongoing expense you’ll need to budget for as a homeowner, you’ll also need to pay for six months of those taxes before you can close on the sale of your home.

6. Escrow account

In some cases, you’ll pay for your property taxes and other expenses like insurance in the form of an escrow account upfront. Your lender may require that you leave extra money in your escrow account to cover miscellaneous expenses. 

7. School taxes

Depending on where you buy a home, you may need to pay school taxes to help finance the local schools. This is one of the major hidden costs of buying a new build home as many newer communities often charge more taxes to cover the building of new schools to service the community. Your real estate agent will help you determine if a house comes with school taxes attached to it. 

8. Closing costs

When the day finally comes to close on your new home, you’ll need to pay for any necessary closing costs. Some of these costs were previously noted and if you haven’t paid them by the time of closing, you’ll pay them at that point. Closing costs can include:

• Appraisal fees
• Closing or escrow fees paid to the escrow agent
• Homeowners insurance for the first year
• Loan origination fees
• Mortgage points
• Pest inspection fee
• Property taxes for the first six months
• Private mortgage insurance (if your down payment is less than 20% of the home’s purchase price)
• Title search and insurance
• Miscellaneous fees (such as having a real estate attorney review your closing documents) 

While closing costs can vary greatly, expect to pay anywhere from 3% to 5% of the mortgage amount. 

9. Moving costs

If you think you can close your wallet now, pause for a moment. Once you close on a home, it’s time to move. This is an exciting moment, but also a pricey one, especially if you need to hire a moving company. Leave a little room in your budget for packing supplies, time off work, and hiring a mover or renting a moving truck. 

Ongoing, and overlooked, costs of homeownership

Now that you know what costs to expect during the home buying process, you can create a budget to help you navigate that expensive time in your life. 

When you’re so focused on the major price tag that your new home comes with, it’s easy to forget about how the additional costs when buying a house add up. The costs don’t stop once you buy a home, so don’t forget to budget for these ongoing expenses. 

10. Utilities

Before you buy a home, you need to do the math to ensure you can afford more than just the monthly mortgage payments. If you previously lived in an apartment or smaller home, you may face some utility sticker shock when you move into a new place. You’ll encounter a wide variety of utility bills such as:

• Electricity
• Gas
• Heat (learn about baseboard heating vs. forced air)
• Sewer
• Water (learn about city water vs. well)
• Cable
• Internet
• Phone (if you have a landline)
• Trash 
  

Where you live, the size of your home, and your personal habits will greatly affect how much you pay for utilities. For some of these utilities, you need to pay installation fees, which really add up for new homeowners. 

11. Home maintenance and repairs

Sadly, the expenses of being a homeowner can sneak up on you when you least expect them. Have an emergency fund set up to cover the costs of home maintenance and unexpected repairs so you don’t have to worry about how to pay for them when a pipe leaks or the air conditioner breaks in the dead of summer. 

12. Homeowner’s insurance

If you have a mortgage loan, the lender will require you to buy homeowner’s insurance to protect both you and them financially. Even if you paid cash for your home, it’s a good idea to take out a solid homeowner's insurance policy to cover the costs of any major repair needs, injuries that occur on your property, and theft. 

13. Mortgage insurance

If you weren’t able to make a down payment of 20%, you’ll need to pay private mortgage insurance, also known as PMI, each month. 

14. Homeowners association fees

Homes located in a planned community often come with a homeowners association fee that homeowners must pay monthly or annually to cover the costs of landscaping, community repair, and maintenance of amenities like pools. How much your fee is will depend on your community, but expect to pay around $200 to $400 a month. You can always skip these fees if you buy a home in a neighborhood without a homeowners association. 

The high costs of homeownership are often worth it, but it’s important to know what costs are coming your way so you can plan, save, and avoid a whole lot of stress.

FAQs

Q: What is included in the cost of owning a home?

The cost of owning a home includes more than just the purchase price. It also includes things like property taxes, homeowners insurance, utilities, maintenance and repairs, and any homeowner association fees.

Q: What is the biggest cost after buying a house?

The biggest cost after buying a house is typically the mortgage payment. This can include the principal, interest, property taxes, and homeowners insurance.

Q: How can I estimate the monthly cost of owning a home?

To estimate the monthly cost of owning a home, you can use a mortgage calculator. This will help you determine your monthly mortgage payment, which includes the principal, interest, property taxes, and homeowners insurance. You can also estimate your monthly utility costs based on the size of the home and the climate in your area.