The process of buying a home is not always as straightforward as it seems. There are many costs associated with home buying that one needs to be aware of before embarking on the journey. Some of these expenses are unexpected, which can derail a homebuyer’s plans. This article highlights eight often-unexpected costs associated with buying a home and provides tips on how to prepare for them.
1. Earnest Money
Earnest money is a good faith deposit made after a buyer’s initial offer is accepted. It is usually a small percentage of the sales price, but in hot markets, the listing agent and the seller may expect between 3% and 5% in earnest money to show that the buyer is serious. A first-time homebuyer may not be aware of this expense, and it can easily derail their homebuying dreams. Therefore, it is essential to budget for earnest money and offer a higher amount to be safe.
2. Appraisal Fee
Before a lender can approve a mortgage, they need a professional appraisal showing the home’s value. As the buyer, you are responsible for paying the appraiser’s fee. Expect to budget between $300 and $700 for an appraisal, depending on the property’s size and complexity. If the home does not appraise at a high enough value to satisfy the lender, you may need to get a second opinion, which will add to your expenses.
3. Inspection Fees
An inspection is not required, but it is a good idea to have one. You will bear the cost yourself, so it is essential to budget for this expense. Every homebuyer should consider at least two types of inspections, a standard home inspection and a separate inspection for termites. The average home inspection cost is $341, and a termite inspection may add another $65 to $100 to your budget. A termite inspection can provide insight into past damage that could compromise the home’s foundation or structure.
4. Closing Costs
Closing costs are typically between 2-5% of the loan amount. However, the amount you have to pay can easily be one of the largest hidden costs of buying a home. Closing costs are on the rise, with transfer taxes for a single-family property rising 13.4% in 2021. You can ask the seller to offer a credit toward closing costs, effectively financing them into your mortgage.
5. Moving Expenses
Moving expenses are often overlooked when buying a home. Once the home is yours, the next step is moving your boxes and furniture from your old home to your new one. The cost of moving can vary depending on how much stuff you have and how far you are moving. Therefore, it is essential to budget for moving expenses before buying a home.
6. Home Insurance
Home insurance is necessary for protecting your investment in the event of a disaster. The cost of home insurance varies depending on where you live, the type of home you have, and how much coverage you need. It is essential to shop around and get quotes from different insurance companies to find the best coverage at the best price.
7. Property Taxes
Property taxes can be a significant expense for homeowners. Property tax rates vary depending on where you live, but they are usually based on the value of your home. It is essential to research property tax rates in your area and budget for this expense when buying a home.
8. Home Maintenance and Repairs
Home maintenance and repairs are ongoing expenses that every homeowner will face. It is essential to budget for these expenses before buying a home. Home maintenance costs can include lawn care, HVAC maintenance, plumbing repairs, electrical updates, and general upkeep. It’s also important to keep in mind that unexpected repairs can arise, so having an emergency fund set aside for these situations is crucial.
Location is one of the most critical factors to consider when buying a home. The neighborhood, school district, and proximity to essential amenities can all affect your quality of life and the value of your home. Take the time to research the area thoroughly before making a purchase. Drive around the neighborhood, talk to locals, and consider factors like commute times and access to public transportation.
10. Don’t Rush the Process
Buying a home is a significant investment, so it’s essential not to rush the process. Take the time to explore different options and research the market thoroughly. Create a list of must-haves and deal-breakers, and be patient in finding the right home that meets your needs and budget. Rushing the process can lead to making an uninformed decision that could ultimately cost you more in the long run.
Buying a home can be an exciting and rewarding experience, but it’s crucial to approach it with careful consideration and planning. By understanding the costs, researching the market, and working with professionals, you can make an informed decision that’s right for you and your family. Remember to be patient, trust your instincts, and don’t hesitate to seek advice from trusted professionals throughout the process.