As the spring season is approaching, many consumers will be looking to take advantage of the lower real estate prices and mortgage rates by purchasing a home. Remember….Not all of the costs associated with home ownership are reflected in the listed price. Many first-time home buyers may be surprised by the amount of money they’ll need to set aside for housing-related expenses that they hadn’t previously considered. These often overlooked expenses can include everything from title insurance to lawn mowing. To give potential home buyers a better sense of the budget they’ll need to buy and maintain a home, here are the top 10 hidden costs of home ownership:
1. Home inspection. Since a home purchase is likely to be the largest financial investment of your life, it’s a good idea to have it professionally inspected beforehand. Some consumers choose to skip this step in order to save money but, it can actually cost more in the long run if problems arise. A home inspector can point out areas of the property that may need repairs. Buyers can use this information as leverage during home-price negotiations or simply to determine whether or not the property is worth purchasing. The cost of a home inspection, which can run several hundred dollars or more, is typically incurred by the buyers before they go to closing.
2. Pest inspection. Buyers should consider obtaining a separate inspection for wood-destroying insects, such as termites. (A regular inspection will not include this) Although no laws mandate pest inspections before getting your loan, and not all lenders require them, buyers would be smart to have the procedure done prior to closing. Termite inspections typically cost between $50 and $250.
3. Appraisal fees. Before you can purchase a home, your lender will require you to have the property valued by a professional real estate appraiser. Lenders use such appraisals when determining the amount of money to offer mortgage borrowers. After buyers pay the fee—which typically ranges between $300 and $400—it appears as a credit on their closing statement.
4. Closing costs. When you arrive to sign your closing documents, be prepared to pay assorted fees. These fees also known as closing costs can include processing fees, underwriting fees, recording fees, survey fees, and title insurance fees. There are various service providers who are involved in this process. They have their costs and [lenders] have some of their own administrative costs as well. But savvy consumers can limit these expenses. Potential buyers should ask several different lenders for good faith estimates, which outline closing costs in detail. (Lenders, however, are under no obligation to offer you such information before you apply, he says.) If lender A charges a document preparation fee and lender B doesn’t, that might be one of the considerations. Closing costs vary, but they usually range between 4 to 6 percent of the mortgage loan amount.
5. Moving expenses. Buyers face an additional wave of costs once their home purchase is complete. Take moving expenses. Unless your new house is around the corner or you have a large group of helpful friends, you’ll likely need some professional help to transport your belongings. Such expenses can reach several thousand dollars or more, depending on the distance of the move.
6. Furniture. Once you’ve lugged all of your furniture into your new property, you may find that your old sofa and dining room table aren’t nearly enough to fill out the house. Maybe the buyers came from a one-bedroom apartment and they are buying a three-bedroom house. They are really going to have some major expenses just to furnish the house with the basics. The beds, lamps, and tables often needed to furnish additional rooms can add up quickly. The expense of that can really catch you by surprise.
7. Property taxes and homeowners insurance. If you have never had a mortgage, be aware that your monthly bill won’t simply reflect the loan amount plus interest. It will also reflect property taxes and premiums for homeowners insurance, which all mortgage borrowers are required to obtain. “PITI” or principal, interest, taxes, and insurance. Annual homeowners insurance premiums typically range between 0.5 to 1 percent of the mortgage loan amount. Property taxes will vary a great deal, but can run several thousand dollars a year or more.
8. Homeowners association/condo fees. Consumers who buy into certain developments will have to pay an additional monthly fee on top of their payments for principal, interest, taxes, and insurance. Condo, coop and single-family townhouse developments often charge residents for services that benefit the community, like lawn mowing or employing a front-desk attendant. Condo fees are specifically for condominiums. Home association fees can also be for coops and single-family town home developments. Such fees will vary, but can total from $100 to more than $700 a month (coop fees are usually higher)
9. Utilities. You may be surprised by how much you’ll need to budget to keep your house warm and the water running. “You might have been renting an apartment and you were paying some portion of your utilities or maybe all of them, but the first cold winter you are in your house, you might say, ‘Wow, look at these utility bills,'” Utility costs will vary by region and consumption. To get a sense of the costs, home buyers should ask sellers for monthly utilities estimates before they close the transaction.
10. Maintenance and Repairs. Although that big backyard might be a great place to grill burgers, it’s also an expense. As a homeowner, it’s your responsibility to keep your property maintained. That means raking the leaves, mowing the lawn, trimming the hedges, and clearing out the gutters, among other tasks. To maintain the exterior property, you may have to buy a lawnmower, a hedge trimmer, or other equipment that you didn’t need when you lived in an apartment. If you are a first-time buyer, you may fail to appreciate just how much stuff you need to buy in order to manage your home. Also remember, when you move out of that apartment, there’s no longer a landlord to call when the sink backs up. Instead, it’s up to you to contact and pay the plumber and the sink is just one of the many home features or appliances that homeowners may one day need to repair. Homeowners are encouraged to set aside funds to take care of such repairs when they become necessary.