In a pacing real estate market like the US where a house is sold within a couple of weeks, the buyers can overlook hidden costs in the dire search of landing a new home. That’s all the more reasons why buyers, especially first-time buyers, should slow down, take a breather, and study in-depth about these hidden costs while buying a home.
These costs comprise agent commissions, down payments, lender fees to originate and underwrite a mortgage, appraisal, homeowners and title insurance, filing local and state records, and more such variables.
You can simply avoid this by exploring properties on For Sale By Owner websites that let sellers list without a traditional real estate agent, thus helping them save thousands of dollars.
If you’re wondering how many parts of your mortgage should be kept aside for these hidden costs, 3% to 5% is what you should ideally expect to pay. If you’re confused about the exact closing cost of the deal you’ve made with the seller, many websites offer the Closing Cost Calculator option to simplify your calculations and make strategic decisions.
Houzeo, one of America’s leading for sale by owner real estate websites, offers a Closing Cost Calculator service – one of the best tools to give you a precise estimation and helps you make smarter decisions.
If you believe that down payment and agent commission are the only initial costs you’d incur while buying a home, you may want to reconsider it. Along with the basic cost, a buyer has to also set aside a handful amount for costs that are either unexpected or unjustified.
Hidden costs can fluctuate especially when you’re buying a home in the hot real estate market. When you sit down to calculate these expenses, some might make sense to you while some might come as a surprise. This is especially so when you plan to renovate the property you wish to buy.
Finbri, for example, provide property development finance from £26k to £250m, funding both experienced and first time developers for asset acquisition, ground up development, mixed-use schemes, heavy renovations through to change of use, conversions and lighter refurbishment projects. They are certainly worth considering.
To shield you from any last-minute surprises, this article will help you understand in detail how these costs are classified and everything you need to know.
- Home Inspection:
Does your dream home have a solid roof, a beautiful pool, and perfect ventilation? Well, this welcomes some unwanted expenses when buying a home. The inspection company may charge you irrelevant expenses such as roof inspection, extra air conditioning inspection, and if you have a pool, add on to the charges. They’re smart in a way to play safe by mailing you these bills individually after the job is done, without keeping the realtor in the loop.
The average cost of a home inspection comes around $300 to $400, but can easily accelerate up to $600 to $700
2. School Taxes:
School taxes will differ depending on the district you choose to live in. If you have school-going children and are aiming for the best quality education, you may be happy to pay more of this tax. If you don’t have school-age children, you may want to be observant about what’s the amount you are expected to pay. Again, this depends on the factor where you’re willing to move.
3. Pre-fund Escrow:
Being asked to pay the escrow amount upfront to cover expenses like property taxes and insurance is a common practice. This fund helps to cover the unexpected rise in expenses such as property taxes and insurance. You can choose to waive off the pre-fund escrow by paying the revised taxes and insurance amount.
4. Credit Score:
Lenders may charge you an additional fee to determine your credit score, which in turn will help decide the interest rate if you’re applying for a loan. The lower the credit score, the higher will be the rate of interest.
Check your credit score bracket and ask your lender if waiting for the credit score to increase will benefit you to get a better rate of interest.
5. Property Tax:
We’ve mentioned this term a couple of times previously. These are the fees you pay the state government in exchange for public services like fire departments, roads, and public schools. These taxes can be a little concern in some areas, while a huge expense in others. The amount that a homeowner pays largely depends on the property’s assessed value and local tax rates.
Do some digging into what you can be expected to pay when shifting to a new area since this could be a major deciding factor to relocate. Typically, the lenders roll the property tax in your monthly mortgage bills and add the amount to your escrow account.
It is also important to note that when a home gets re-appraised, chances are your property taxes will substantially increase. Again, make sure to have the facts and figures in place before diving right into buying your dream home.
6. Homeowners Insurance:
Similar to property taxes, lenders may involve homeowners insurance in your monthly mortgage rate. While it may be clubbed with other expenses, it is important to remember that this expense is prominently there. And there’s a possibility that it could go up or down, depending on your coverage needs.
7. Earnest Money:
Essentially like a security deposit, earnest money is an expense that you put down even before filling out paperwork. By keeping this aside, it shows your seriousness and interest level in purchasing the house. If your transaction goes through, you will get your earnest money back.
If you back out from the deal, chances are you won’t get the earnest money back. This should be mentioned in any of the contracts you sign. Earnest money can vary from anything from a couple of hundred dollars to a thousand or even more.
To sum it up:
With all these hidden costs, some unexpected while some unjustified, the process of purchasing a house can sometimes be overwhelming. Here are 7 important expenses you need to look out for while buying a house:
- Home Inspection
- School Taxes
- Pre-fund escrow
- Credit score
- Property Tax
- Homeowners Insurance
- Earnest Money
Wondering how to avoid these hidden costs that shoot up your expenses more than you’ve calculated? By purchasing your dream home through Flat Fee Multiple Listing Services where you get more control over your deals and less hassle of paperwork. This way, you not only save 6% to 8% of a traditional real estate agent’s commission but also there’s no room for any hidden costs.
It is always advisable to sit down with your financial advisor and face the numbers head-on to be well prepared for what’s to come.