Plan for the Unexpected
How to Plan for Unexpected Expenses When Buying a Home
August 30, 2019
Chances are, you already expect the process of buying a home to be a bit expensive. After all, you’ve likely been saving a hefty down payment for many years and are ready to hand that over to your new lender. Not to mention, you’ll be taking on a mortgage loan to pay for big new purchase.
But no matter how much you plan for these massive price tags, it might actually be the little surprise expenses that hurt the most. They tend to catch many homebuyers off-guard and can add up to a significant amount when all is said and done.
Here’s a look at the unforeseen costs that surprise homebuyers most often, and how big of a pinch you can expect them to bring when buying your own home.
Inspections and Appraisals
Many mortgage lenders will require a home to undergo a professional home inspection before they will approve funding. Some may also require an updated appraisal on the property. Each of these reports costs a few hundred dollars -- depending on your area and the size of your home -- and unless you negotiate otherwise, you’ll be on the hook for the bill as the buyer.
In certain markets, you could request that a seller cover either (or both) of these expenses. However, more often than not they’re the responsibility of the buyer.
Closing day is exciting and is the meeting at which your purchase transaction actually takes place (hello, new keys!). But unless you’ve bought a home before, you might not know that you’ll be expected to write a pretty significant check at closing.
Closing costs include a number of expenses, such as:
- Origination and/or underwriting fees from your mortgage lender
- Mortgage points purchased
- Home appraisal fee
- Home/pest inspection fees
- Property survey
- Title insurance
- Settlement/escrow fee
- Title investigation
- Notary fees
- Attorney fees
- Transfer tax
- Mortgage premiums (PMI)
- Home warranty
- Prepaid interest
You may be subject to some or all of these fees, though a few of them can be negotiated. Your mortgage lender will estimate the total of these fees beforehand, but there is no guarantee they’ll be correct on closing day -- you could see a 5-10% increase in the total, so be sure to bring your checkbook.
Insurance and Taxes
When calculating your mortgage payments, did you remember to include property tax payments? These can easily be hundreds -- or sometimes, thousands -- of dollars on top of your monthly loan contribution and cannot be forgotten when budgeting for a home.
Many lenders will collect property taxes along with your monthly mortgage payment, holding the funds in escrow until annual taxes are due. They may also collect your homeowner’s insurance premiums at the same time.
Homeowner’s insurance is required by most all mortgage lenders. Policy premiums will depend on your home and the coverage options chosen, though the U.S. average is $1,083 annually.
Increased Utility Bills
If you’re moving from a smaller home, townhome, or apartment into a single-family home, you might not realize just how much your utility bills can climb. Higher ceilings, additional windows, multiple levels, gas versus electric, older appliances, an added A/C unit… these can all contribute to significant costs each month.
Even if you’re moving into a home comparable to where you live now, it’s smart to assume that your utilities will go up. If you’re surprised and they remain the same (or even go down), consider yourself lucky!
There are plenty of small expenses that can add up when buying a new home, which should be considered when budgeting.
First, you may want to replace your locks. You don’t know how many keys are floating around or who would now have access to your home. Having the entire house rekeyed, or all locks switched out, is a wise decision. Expect this to cost a few hundred dollars.
Then there are moving expenses. The cheapest option would be to do it yourself, though you’ll still need to worry about boxes, paying for gas and truck rentals, etc. You can also hire movers, though your cost will depend on your belongings and how extensive you want the moving service to be.
Lastly, you may incur transfer fees for various services when you move. Security system, cable, and internet providers are all notorious for this.
Before buying a home, try to remember all of these unexpected costs. By setting aside funds for them in advance, you’ll save yourself from a budget-breaking surprise come moving day.