Purchasing a home is an exciting milestone, but many buyers underestimate the additional costs beyond the purchase price. While the down payment often takes center stage, several hidden expenses can catch you off guard if you’re not prepared. Our clients range from first time home buyers to empty nesters looking to down size but folks tend to forget about the small costs that can add up.
Closing Costs
Closing costs typically amount to 2% to 5% of the home’s purchase price and include a variety of fees.
Common Closing Costs:
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Loan origination fees.
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Title insurance and search fees.
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Appraisal and inspection fees.
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Escrow fees and attorney charges.
Pro Tip: Request a detailed estimate from your lender early on to avoid surprises. You can also shop around for some services to save money. Since we have seen thousands of loan estimates and settlement sheets, we are always available to review any estimates and provide feedback.
Property Taxes
Property taxes are an ongoing cost that varies by location and home value.
What to Know:
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Taxes are often prorated at closing, meaning you’ll pay the seller for their portion of the year.
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Future taxes may increase as property values rise.
Pro Tip: Local property tax rates are available from the County Assessor and it’s important to understand the cost based on the new assessed value and factor that in to your monthly budget.
Homeowners Insurance
Lenders typically require homeowners insurance to protect their investment.
Cost Factors:
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Location (e.g., flood-prone or high-crime areas may cost more).
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Coverage levels, including additional riders for specific risks.
Pro Tip: Bundle insurance policies (e.g., home and auto) to get discounts.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, you’ll likely need PMI, which protects the lender if you default on your loan.
Costs:
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PMI can add 0.3% to 1.5% of your loan amount annually.
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It’s often included in your monthly mortgage payment.
Pro Tip: Aim for a 20% down payment to avoid this cost but when you can’t avoid PMI you always have the option to refinance later when your equity increases.
Moving Expenses
Relocating to your new home involves additional costs.
Expenses to Consider:
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Professional movers or rental trucks.
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Packing supplies and temporary storage.
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Utility connection fees for your new home.
Pro Tip: Plan ahead and compare moving companies for the best rates.
Home Maintenance and Repairs
Homeownership comes with ongoing maintenance to preserve the property’s value.
Examples:
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HVAC servicing and roof repairs.
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Landscaping and lawn care.
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Unexpected emergencies like plumbing or electrical issues.
Pro Tip: Set aside 1% to 3% of your home’s value annually for maintenance.
HOA Fees
If your home is in a community governed by a homeowners association (HOA), you’ll need to pay monthly or annual dues.
What They Cover:
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Maintenance of shared spaces (e.g., pools, parks, landscaping).
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Enforcement of community rules.
Pro Tip: Review HOA fees and rules before buying to ensure they align with your budget and lifestyle.
Utilities and Energy Costs
Energy bills can be higher than expected, especially if you’re moving to a larger home or a different climate.
What to Expect:
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Electricity, gas, and water bills.
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Internet, cable, and garbage services.
Pro Tip: Ask the seller for average utility costs to better estimate your monthly expenses.
Renovations and Upgrades
Many buyers make changes to personalize their new home or address outdated features.
Common Upgrades:
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Painting and flooring.
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Kitchen or bathroom remodels.
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Installing smart home technology.
Pro Tip: Prioritize essential projects and spread out cosmetic updates over time.
Emergency Fund Contributions
Unexpected expenses can arise, even with thorough planning.
Why It’s Important:
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Appliances can break down.
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Storm damage or other incidents may not be fully covered by insurance.
Pro Tip: Build a robust emergency fund equivalent to three to six months of expenses.
Final Thoughts
Understanding and preparing for these hidden costs will make your home-buying journey smoother and reduce financial stress. By budgeting carefully and planning for the unexpected, you’ll be better equipped to enjoy your new home while keeping your finances in check.
Are you ready to make the leap into homeownership? Contact us for expert guidance and tips to navigate the process with confidence!
