Buying a home? Congratulations! While buying a home is an incredibly wise investment, it can cost more than people realize. We have seen the unexpected costs in real estate surprise many of our clients! Read on for our breakdown of these sometimes overlooked costs when buying a home.
Earnest Money
Many buyers are surprised to learn they must write a hefty “earnest money” check. What is it? Well, the purpose of an earnest money deposit (EMD) is to prove to a seller that you are “earnest” about buying the house (in other words, that you aren’t writing a contract without the intent to actually purchase it). For properties under $300,000, a $5,000 earnest money check would be typical. $30,000 would be about right for a house at $1,000,000. You can learn more about EMDs here.
While the EMD is not an extra cost per se (it is credited towards your downpayment), buyers are often surprised it’s due as early as it is!
Land Survey
Depending on your lender’s requirements, you may need to get a professional land survey to confirm the boundary lines of your new home’s property. According to wallethub.com, land surveys can cost anywhere between $100 and $900, but most average around $500. Learn more here.
Closing Costs
In our area, you should budget about three percent of your home’s purchase price for closing costs. For a more detailed breakdown of closing costs, click here.
Insurance
As a homebuyer, you will be buying several different kinds of insurance, including title insurance, homeowners’ insurance and (possibly) mortgage and/or flood insurance. Costs will, of course, vary. It’s a good idea to line up an insurance broker ahead of time!
Home Warranty
While certainly not required, many buyers, especially first-time buyers, purchase a home warranty to guard against the steep costs of repairing or replacing a home’s appliances and systems. These insurance policies typically run several hundred dollars but can save you thousands in repair and replacement costs. Note that a home warranty can often be negotiated into the contract (meaning the seller buys it for the buyer).
Repairs Uncovered During the Home Inspection
Home inspections usually cost $500 or more depending on the size of the property. Very often, the home inspector will recommend more specialized inspections such as structural ($800), sewer line ($300), mold ($395), tree ($150) roof ($150), and chimney ($150) inspections. Definitely plan to spend some funds to fix the issues that are bound to be uncovered during your home inspection You may need to make minor electrical or plumbing repairs or deal with larger problems, such as foundation issues. Of course, a home inspection contingency can provide some peace of mind if there are any deal-breakers.
Moving Costs
Whether you are enlisting friends to help you move or hiring professional movers, you will have to spend some money to move into your new home. At the very least, you’ll need to purchase boxes and packing materials.
Fun fact: industry guidelines indicate that a move over 500 miles will likely be cheaper with a professional; moving any less is cheaper if you DIY.
Other Major Purchases
Most home buyers, and nearly all first-time homebuyers, will need to invest some significant funds into purchases to manage their homes and yards. Buying things like a lawnmower, power tools, patio furniture, and/or a pressure washer can add up very quickly.
Higher Utility Bills
In most cases, buyers are moving into a home with more square footage. With more space to heat and cool and a (larger) lawn to water, you’ll certainly face increased utility bills.
Maintenance
Plan on paying one or two percent of your home’s value annually for its maintenance and upkeep (think HVAC cleaning, window washing, lawn yard care, gutter cleaning, and pressure washing). You can learn more about the hidden costs of homeownership here.
HOA or Condo Fees | Special Assessments
If you are buying a condo or co-op, you will have various fees to pay related to your new community in either condo or homeowners’ association (HOA) fees. These additional fees will largely depend on the services and amenities your community offers. They often include things like exterior maintenance, trash removal, landscaping, and snow removal. While fees paid to homeowners’ associations can be steep, they do save you money that you might have spent on repairs and maintenance.
Additionally, if a major repair or significant improvement for the building is required, you as a homeowner will have to pay an assessment, which is your portion of the expense. These assessments can run thousands of dollars, so you’d be wise to set up a fund for this possibility.
The Bottom Line
The costs of buying a home extend far beyond the list price of the home. The unexpected costs in real estate can surprise many people! Our best advice? Educate yourself about all of the various costs and plan accordingly. Budget ongoing expenses into your monthly payments. In some cases, buyers may need to decrease their budget for a new home to account for some of these expenses. Want to talk it through? Reach out anytime. We’re always here to help.
