Buying a house? Don’t forget to leave yourself some wiggle room for added expenses aside from the actual purchase price.
A real estate transaction isn’t like buying a sweater. You don’t just pay the price on the tag – plus tax – then be on your merry way. There are a lot of extra costs associated with buying property, which is why it’s critical that you account for these expenses so you don’t wind up scrambling after the fact.
When you’re budgeting for a home purchase, don’t forget to include the following expenses:
Home Inspection
If you’re buying resale, you’re going to want to find out if there are any major issues with the property that would turn you off of sealing the deal after you’ve put in an offer. You’d be well-advised to insert a clause in your agreement for a home inspection to give you the opportunity to have a professional home inspector go through the property with a fine-tooth comb to identify any potential problems that could be costly to repair.
Sure, home inspections cost money up-front – usually within the $300 to $800 range – but the cost is well worth the headaches and hassle they could potentially save you from. That said, it’s money you should budget for when buying property.
Appraisal Fee
Lenders are going to want to have an accurate idea of what the home you’re buying is presently valued at in the current real estate market. They’re not going to hand you a loan for $300,000, for instance, to buy a home that’s really only worth $280,000. As such, an appraisal is necessary before the lender carries out a loan.
Depending on the location of the property, the fee can range anywhere between $200 to $1,000. However, the average appraisal tends to stick around the $350 to $400 range – it really depends on different factors associated with the home.
Lawyer Fee
Every state – and even separate areas within states – has different requirements when it comes to the need to hire a real estate lawyer to review a purchase agreement. Certain states leave it as an option, while others deem it a necessity. Your real estate agent will advise you on the rules in the region that you’re buying in.
Of course, if the property or the purchase arrangement isn’t cut-and-dry, it might be wise to get a lawyer in on the action anyway so he or she can review the contract to make sure you’re not getting yourself into a situation you can’t handle. If a lawyer is brought in, you can expect to pay anywhere between $800 – $1,500 on average, depending on the location.
Private Mortgage Insurance
If you plan on putting less than 20% as a down payment on the home, you’ll be nabbed with Private Mortgage Insurance (PMI), which basically protects the lender in case you default on the mortgage. The fees will vary, but they typically range between 0.5% to 1% of the entire mortgage amount on a yearly basis. So, you could be paying as much as $1,500 on a $150,000 loan if your specific PMI is 1%.
The silver lining here is that once you’ve made enough payments to the point where you owe less than 78% of the purchase price of your home, the PMI payments will be dropped.
Title Insurance
Imagine buying a house, then a few months later the estranged husband of the lady you bought from says the home is still his, and he wants you out. It’s not common, but it can happen.
That’s what title insurance is for. It protects you if you later find out that someone else is claiming title to the home. But it costs money. The average cost of title insurance is about $3.50 per $1,000, depending on the local marketplace. That means you’d be paying about $1,050 on a $300,000 home purchase, for instance.
Property Insurance
Your lender will not provide you with a home loan without proof that the home has been adequately insured. Property insurance typically covers the building structure itself, as well as the contents within it. Anything can happen, where it’s a fire, or your home has been burglarized.
However, house insurance might not cover other things, like damage from floods and earthquakes. Certain factors might warrant insurance riders to cover these extra risks.
The cost of property insurance varies a great deal, depending on the location, the size of the home, the amenities of the property, and how much coverage you want. However, the average annual premium in the US is about $952, but this number can be much lower or higher based on factors already mentioned.
HOA Fees
Planning on living in a homeowner’s association community? If so, you need to budget for monthly HOA fees that cover things like property maintenance and upkeep of common areas. Like anything else in real estate, the fees you pay can vary widely.
HOA fees typically range from $200 to $400 a month. However, the more upscale the building and the more amenities it’s got, the more you’ll be paying.
Property Taxes
It’s impossible to run from the tax man, and that includes when buying a home. And if the previous owners move out after they’ve already paid their taxes for the full year, you might owe them before the deal even closes.
The cost of property taxes is based on a tax rate that’s set by the local government. Depending on the location of the property, these tax rates can vary quite a bit. The average US household is charged about $2,089 in property taxes, but this number can be a lot lower or higher. For instance, Hawaii has some of the lowest property taxes in the country at an annual average $482, while residents in New Jersey pay an average of $3,971 per year!
Moving Expenses
Even if you’re moving out of your parents’ house, you likely have belongings that you’re going to want to take with you. And if you’re a family of five moving from another home in a different city or state, the move is going to be that much more involved – and expensive.
While you can wheel and deal with your moving company, you’re basically looking at an average cost of $1,170 if it’s intrastate and $5,630 if the move is between states, according to the American Moving & Storage Association.
Utilities
No one is surprised at the fact that it costs money for lighting and heating/cooling, but it’s worth mentioning. It’s also worth noting that different areas have different price ranges and usage standards. The cost associated with running the heat in a home in Buffalo will be a lot different than the price to cool a house in Miami.
To get an accurate picture of what your utility bills will look like after you move in, ask sellers what they pay on average for utilities before closing the deal.
The Bottom Line
You might find a great deal on a home, but the costs don’t end with the purchase price. As a general rule of thumb, you’ll probably pay anywhere between about 2% to 5% of the purchase price of the home in closing costs. If you’ve already got a professional real estate agent and mortgage broker in your corner, use their expertise to help you crunch these numbers and figure out if the overall cost of the purchase is doable for you and your financial situation.
