The price of a home and down payment are usually the first costs that come to mind when budgeting for a home, but it’s important to also keep in mind the hidden costs of buying a home that might surface throughout the process. There are several costs that often surprise first-time home buyers and individuals going through the buying process again after some time. Here’s an overview of costs to keep in mind as you set your home buying budget and search for your dream home.
Hidden costs in the purchase agreement
A purchase agreement is a contract between you and the seller outlining the details of the home sale transaction. It will include your offer price, as well as other conditions and stipulations. It’s important you understand all the fees outlined in the purchase agreement, so they don’t surprise you when it comes time to pay at or before closing. The seller should clearly state any expenses they expect you to cover or pitch in on, such as closing costs and Realtor and administration fees, which have recently become more expensive.
The purchase agreement will also outline the total amount of earnest money you are required to pay if your offer is accepted. Earnest money is your deposit – a payment toward the home to represent your earnest intention to buy the home. Keep in mind, if you back out of the sale, the seller has the right to keep the funds.
Hidden costs once your offer is accepted
Once your offer is accepted, you must provide your earnest money, which varies based on the price of the home and the seller’s requirements outlined in the purchase agreement.
At this stage in the home buying process, you’ll also need to pay an inspection company to do a thorough sweep of the home and provide a report of any damages that could incur additional costs. While you can waive your right to an inspection, it’s a good idea to have one performed and make your offer contingent upon the results. If the seller doesn’t agree to cover repair costs, you could be left with the expense.
Lastly, your lender will require you pay a full year of home insurance costs up-front before you move on to officially closing on the home.
Hidden costs at closing
Closing costs include loan processing fees, an escrow account setup fee, an appraisal fee, your down payment and any additional fees disclosed in purchase agreement. All of these costs are disclosed in your application, so be sure you’re aware of them and that they look the same at closing.
Ready to buy?
Being aware of these hidden costs can help you re-evaluate your budget and find a home in a lower range so you can comfortably cover any extras.
As you embark on your home buying journey, be sure to surround yourself with knowledgeable experts who can guide you along the way and remind you of these tips.