It goes without saying that purchasing a home isn’t exactly cheap, but how much does it really cost? While it varies slightly on each individual sale there are many “hidden” fees that buyers are often unaware of. When acquiring your pre-approval for your home loan you are more than likely aware of your down payment and your mortgage amounts, however, what other costs should you plan on being responsible for? 5 Hidden Costs When Buying a Home
Closing Costs
One of the more common costs you may have heard about is closing costs. In some cases the seller will pay for a portion or all of the closing costs, however, it is often the buyer’s responsibility. In general closing costs range from 2-5% of the home’s value. So what exactly are the closing costs? Closing costs consist of a multitude of little fees that are bundled into one lump sum such as title insurance, recording fees, origination fees, notary fees, etc.
Earnest Money
Prior to the closing of your sale you may also be asked to provide Earnest Money to the seller. Earnest money is a way of showing the seller that you are serious about the purchase, should you decide to back out of the sale, oftentimes your earnest money will be forfeited. While it does varry, generally speaking earnest money will range from $500-$1,500.
Appraisals and Inspections
Appraisals and Inspection are nearly always the responsibility of the buyer. While in some cases you may be given the option to forego the inspections and thus save the fees, this can lead to problems or repairs down the line that could have been avoided or tended to if the inspections were to be completed. Generally, there are three different inspections that should be completed, a home inspection, a pest inspection, as well as a home appraisal. Combined these average between $700-$1,000 in total pending on where you are buying a home.
Interest Rates
Interest Rates are a hot topic when it comes to buying a home and sadly many home buyers settle for a higher interest rate just to get a home even if it means throwing money down the drain. Even 0.5% difference can be huge when it comes to buying a home and will either cost or save you tens of thousands of dollars over the life of your loan. Be sure to discuss your interest rate options in-depth with your loan adviser to ensure you aren’t paying more than necessary.
Homeowners Insurance
Congratulations, you’ve purchased your home! But did you forget that you will be required to maintain homeowners insurance? While this doesn’t amount to much, your mortgage lender will require that you have homeowners insurance for the life of your loan. This can be as low as $20/monthly and go up to much higher variables pending on the type of insurance you require or the value of the items you’d like to have insured within your home. You can also include this and your property tax with your monthly mortgage payment.
Whether you are a first time home buyer, buying a second home, downsizing or upgrading, be sure to think through all of the hidden costs that might be associated with your purchase and plan accordingly.
