Buying a home is expensive. There’s no way around it. Even in the most moderately priced neighborhoods and cities, buying an entire house brings with it a whole constellation of fees and costs. While you probably know many of the more obvious costs of buying a home, there are some hidden costs that can surprise you if you’re not prepared.
The following is a list of 6 of the not-so-obvious, hidden costs of buying a home:
Earnest money
Earnest money is kind of like a deposit that you put down to make sure the sellers know you are serious about buying the home. While the money will come back to you – provided that you do indeed buy the home – the earnest fee can be anywhere from 1 to 5% of the asking price.
Earnest fees flush out the buyers who may be unreliable or skittish and helps to assure the sellers they aren’t wasting time and energy on flakes. Ultimately, this process protects both the seller and the buyer, as a buyer who thinks the home has been sold may give up only to find out later that their competitor’s offer was withdrawn or rejected.
Home inspection costs
You shouldn’t take the sellers’ word on anything involving a home inspection. In California, as in other states, you need to have your own inspector come in and document the home’s levels of lead, asbestos, termites, and other possible infestations.
This is typically a $350 fee but could be higher if you need to have the inspector issue a report on the home’s risks of a flood or if it’s an older home that needs to be checked for pests (like bed bugs) and mold.
Home inspection costs often feel like a waste before the home is yours but they protect you from finalizing a deal only to find out your new home has a serious infestation, which can be incredibly expensive.
Closing costs
Closing costs cover a wide variety of expenses that range from legal fees to loans, insurance, taxes, and escrow. Typically, closing costs accumulate to be around 2-5% of the home’s purchasing price, but this will depend on different factors.
Among these factors, you will need to negotiate lender fees, which include a separate litany of costs: loan application fees; the cost of a credit report during your loan application; a loan origination fee; the cost of preparing the necessary documents; and, of course, the upfront interest required to secure the loan.
Additionally, you will need to pay for title taxes, which are required when changing the name on a deed, and title fees, which pay for the lending company guaranteeing your ownership of the home.
Closing costs also include title settlement fees, title insurance binder fees, and a standard title insurance policy. Additionally, you will have to pay for escrow fees, which secure your down payment and the costs of earnest fees and earnest agent fees.
Finally (yes, closing costs seem to never end), you will need homeowners insurance (usually at least 3 months worth to start), notary fees, and prepaid property taxes (usually about 6 months worth).
HOA fees and warranty costs
There are several home-specific costs and fees that will depend on certain conditions in the home you buy. For example, HOA (Home Owners Association) fees factor in if you’re purchasing a condo or a property inside a gated community that funds community-run landscaping or pool facilities.
A home-specific cost can also be your home’s warranty, which can be a good investment because it will cover potential problems with the home in the future. Most real estate gurus agree that maintaining warranty costs is smart, as it will save you from having to upgrade or replace broken or damaged units or appliances.
These aren’t the only costs of buying a home. You also have the down payment, of course, and then private mortgage insurance costs, state recording fees, home appraisal fees, and agent commissions. Additionally, many financial experts recommend funding an emergency fund relief in case of a disaster or death in the family.
