Not to be rude and bring up 2020, but before we can put the year fully behind us and move on for good, you’ve got one last task to tackle—filing your 2020 taxes. With the deadline to file coming up on...
Purchasing a new home can be exciting and daunting all at the same time. For many of us, buying a home is the most significant investment of our lives—but that doesn’t mean it’s not financially complicated, especially for first-time homebuyers! Knowing what to expect in the homebuying process will help you prepare a realistic budget and not get blindsided by unexpected expenses. If you are considering buying a new home, here are eight hidden homebuying costs that you’ll want to be aware of:
1. Home Inspection
Though not required, it is a smart idea to have a certified home inspector take a look at your potential new home. He or she will make sure that the house is structurally sound from roof to foundation, and will also inspect the electric, plumbing, water, and heating and cooling systems.
If they do find any issues, you could angle for the seller to work the costs of repairs into the sale price. Having an inspector do a walk-through will run around $250-$500, but the cost of not catching problems before you close on the home could run into the tens of thousands!
Related Reading: 5 Home Inspection Problems to Avoid
2. Home Appraisal
A real estate appraisal is an assessment of a property’s value as determined by the house’s physical characteristics, features, condition, and in comparison to homes for sale in the surrounding area. Appraisals are completed by trained and certified real estate professionals that are licensed to gauge the value of a home, primarily to help secure a mortgage, refinance, or purchase a new home. The main objective for an appraiser is to help assure lenders that the loan amount does not exceed the value of the property.
Home appraisals are required by mortgage lenders and typically cost $300-$600. From start-to-finish, the process takes about ten days, and your mortgage lender should handle most of the details. The appraisal is usually included in the closing cost fees, so you would pay for the service after your offer is officially accepted or your home loan is finalized.
3. Closing Costs
The closing costs on your home are meant to cover all the fees and services that went into finding, qualifying for, appraising, inspecting, insuring, approving, and finalizing the purchase. There is no standard list of what is and isn’t included in closing costs, as they can vary based on your lender, real estate agent, seller, attorney, appraiser, inspector, etc. Typically, closing costs run between 2.5-5% of the purchase price. This may seem like a negligible percent, but that puts the average cost of closing on a home in the U.S. at $5,000-$10,000!
4. Escrow Account
In a nutshell, an escrow account is an account that pools money—from your monthly mortgage payment (which traditionally includes payment, insurance, and taxes)—into an account for the sole purpose of paying your property taxes and home insurance. While an escrow account is not mandatory, it is highly suggested by most lenders.
The biggest benefit to opening an escrow account is peace of mind. Throughout the course of a year, homeowners have many responsibilities—planned and unplanned. New homeowners are likely to spend a bulk of money in the first year renovating, furnishing their home, and making their house a “home.” The last thing anyone wants to think about is spending additional funds not planned for.
Related Reading: 5 Things First-Time Homebuyers Should Know About Escrow Accounts
5. Property Taxes
Your property taxes are what fund your local government and municipal services such as fire and police departments, schools, and public works. Tax rates vary by location, and may change for a certain area over time.
According to BlueWater, “The amount a homeowner pays in property taxes is determined by the value of your property—which includes not only your home, but also your land. The property tax you pay is also heavily influenced by the property tax rate (aka mill rate) in your community.”
6. Homeowners Insurance
Homeowners insurance will help protect your home (and pocketbook) against damage or loss from destructive forces like theft, hail, and fires. It will also cover you against financial responsibility if someone gets hurt in your home or on your property.
According to Zillow, “You should expect to pay about $35 per month for every $100,000 of home value, though it depends on your city and state. To shop for homeowners insurance, it’s best to get quotes from at least four different companies that offer homeowners insurance coverage.”
7. Moving Costs
Once you’ve finally closed on your new home—congratulations! Now, it’s time to move in. According to HomeAdvisor, “Hiring movers costs $689 and $1,877, or $1,260 on average. This range includes a rate of $25 to $50 per hour for each professional, as well as a rental truck for a relocation of less than 100 miles. Moving prices depend on many factors, like the size of your home, the weight of the items, and how far you need to go. Even things like the time of year can significantly affect the total. Keep these variations in mind as you plan.”
Related Reading: Moving with Kids and Pets: Tips for a Smooth Transition
8. Home Maintenance and Repair
Think about the cost of maintenance and the amount of effort it will take to keep your new home in top condition—both indoors and outdoors. Unlike living in an apartment and having on-call maintenance staff available, when you own a home, the responsibility to repair broken household appliances, handle plumbing issues, or upkeep the yard will now fall squarely on your shoulders. You should also consider if your neighborhood has a Homeowner's Association (HOA), what their annual dues will cost you, and the maintenance and upkeep requirements.
If you're feeling stressed out over the homebuying process—take a deep breath! Remember that you're making an exciting investment for your future and your family, and that all of the hassle will soon pay off. With proper budgeting and planning, these costs will simply be items to check off a list on the way to owning a beautiful new home.
Bridget McGee, Maryland Mortgage Mama, Sr Loan Originator (NMLS#196068), SWBC Baltimore Branch, has more than 18 years of experience in the mortgage industry. She serves on the ECOA committee of the Greater Baltimore Board of Realtor’s, is actively involved in the Women’s Council of Realtors, and teaches both continuing education and personal development classes. She is on the board of Mother’s Fighting for Others, a grassroots charitable organization that supports St. Monica’s Orphanage in Kenya, an active member of her church and very involved in other industry and community events and organizations.