When you buy your first home, it is easy to get caught up in the excitement. You might be busy imagining how you’ll decorate or your life in the home over the next few years. Then you open that first Loan Estimate and get hit with sticker shock. Escrow fees, title transfer taxes, insurance charges … what are all these extra costs?
Maybe you got so swept up in the exhilaration of buying a home that you forgot to budget for the costs of furnishing a larger place in addition to your closing costs. Now, your home has a number of empty rooms!
When you buy a home, you might be expecting certain costs, such as the down payment and earnest money deposit — but there could also be hidden costs that first-time homebuyers especially may not anticipate.
These hidden costs of buying a home could leave you feeling buyer’s remorse — HomeLight’s 2022 Buyer & Seller Insights report found that 18% of buyers underestimated the total expense of owning a home, including taxes, insurance, and other unexpected disbursements.
This guide breaks down common hidden costs of buying a home and how much you should budget for each, so you can be prepared when it comes to closing on your dream home.
Buyers, just be aware that the market is changing.
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Closing and mortgage costs
Most of a buyer’s unexpected costs will come at closing. Title and escrow fees and additional costs associated with your mortgage can all come as a surprise to first-time homebuyers.
Real estate agent Esperanza Marroquin, who works with 76% more single-family homes than the average agent in Lancaster, California, recommends that buyers set aside at least 2% of their home’s purchase price to cover additional unexpected fees. HomeLight’s Closing Costs Calculator tool can help you develop a more precise estimate, and your Loan Estimate and Closing Disclosure will break down exactly what’s owed to whom.
Marroquin and HomeLight Home Loans expert Richie Helali shed some light on the closing costs that buyers might not know about.
1. Mortgage broker fee
Mortgage brokers help prospective borrowers secure a loan by serving as a go-between for the buyer and a potential lending institution. Brokers don’t offer loans themselves; they usually work with several different lenders and loan types so that they can help connect you with a mortgage loan that meets your specific needs.
If you work with a mortgage broker, you’ll have to pay a fee that averages between 1% and 2% of the approved loan amount, or a higher interest rate if the lender will be paying the broker compensation.
2. Underwriting and processing fees
The underwriting and processing fees cover the costs of originating, processing, underwriting, and closing a mortgage loan. Basically, these pay your lender for all of the administrative work involved in the lending process.
They’re sometimes called mortgage origination fees, and costs can vary from lender to lender.
3. Appraisal fee
Appraisal fees cover the costs of your home appraisal, which is almost always required if you are applying for a mortgage loan. Appraisal costs range between $448 and $784 for the average single-family home, but larger homes or unique homes typically cost more to appraise.
4. Credit report fee
When you apply for a mortgage loan, your lender will need to verify your credit history. A credit report fee covers the cost of pulling this report.
These fees range from between $10 and $100 per report, according to Equifax. Remember that each person applying for the loan will need to have their credit report pulled, so this fee can double (or triple) depending on how many people are applying.
5. Interest rate discount points
If you’re looking to lower your interest rate on your mortgage loan, you may opt to buy discount points for your interest rate.
Buying discount points lowers the interest rate on your loan. One point typically costs 1% of the mortgage loan amount and lowers your interest rate by 0.25%. Lenders will typically cap the number of points you can buy.
6. Escrow fees
Sometimes known as closing fees or settlement fees, escrow fees are paid to the title company for handling money, the title transfer, and other paperwork for real estate transactions. These fees vary depending on your area and the title company you choose to work with, and in some cases it may be a percentage of the sale price rather than a flat rate. Average escrow fees range between 1% and 2% of a home’s sale price.
In the early 2022 seller’s market, buyers have typically been picking up escrow fees in their entirety, Helali and Marroquin both said. Future market shifts could change how these fees are generally split, and it might become typical again for buyers and sellers to split these fees evenly, or for buyers to negotiate for sellers to cover escrow fees.
“Buyers, just be aware that the market is changing,” Marroquin says. “They really want to pair themselves with an agent that has a really good pulse on the market and knows where the negotiating power should stand.”
Helali predicts that as the market shifts through 2023 and 2024, we may see sellers who are “more willing to go ahead and cover at least some closing costs.”
You might also want to shop around to find a closing services provider with lower fees; your real estate agent can guide you to title and escrow companies they’ve had success with in the past to get you both a good deal and a smooth transaction.
7. Title search fee
During the title review process, your title company will be looking to see if there are any claims against the property, such as any mortgage liens, filing errors, missing rightful heirs, current deed holders, deed restrictions, or any forgeries detected, among other title issues.
They’re basically making sure that the seller actually owns the property and is the only one with the legal right to sell it.
A title search fee covers the costs of that work and is typically in the ballpark of $200.
8. Title insurance
When you close on your home, you’ll also need to factor in title insurance. Title insurance offers protection if a costly title issue crops up with a home after it’s purchased.
There are two main types of title insurance — lender’s title insurance and owner’s title insurance.
Owner’s title insurance is an optional policy that protects the interest of the owner of the home (that’s you) against certain claims that may arise from before you purchased the property.
Lender’s title insurance protects your lender if any issues arise with the title after it is transferred — let’s say if the title company misses a claim against the property.
Title fees are typically negotiable in a real estate transaction. In some cases, the seller covers the new owner’s title policy, while the buyer covers their lender’s policy. However, who pays for what title insurance varies by state and even locality. These policies together usually cost around 0.5% and 1% of the purchase price, according to the American Land Title Association.
9. Property taxes
If you live in a state where property taxes are paid in advance for the full year, you will have to pay the seller back for the portion of the taxes that cover the months after you close. In states where property taxes are paid after the year is over, the seller will owe you tax money for the days they occupied the home during that year. Some states, like California where Marroquin is based, require payments of property taxes in two installments.
You’ll find the price for this on your Closing Disclosure. Property taxes at closing are calculated by finding the per diem tax rate (total property tax amount / 365 days) and multiplying this amount by the number of days of that tax year that the seller owned the home. If the property taxes are paid after the year is over, this amount would represent what is owed to the buyer by the seller at closing.
10. Transfer tax
When the government charges a fee for documenting a change in ownership, it’s known as a transfer tax.
Not all states collect transfer taxes, and they can range from a flat fee to a percentage of the home’s sale price. Looking for a transfer tax calculator on your county’s website can help you know if you need to pay one and how the cost is calculated. In some states, it is customary for sellers to pay this fee, but buyers might pay it in others. It could also be split evenly if negotiated in the purchase contract.
“A real estate agent will actually come in handy here,” Helali advises. “They’ll be able to basically explain to a client, ‘Hey, if you buy in this county, at least you don’t have to pay transfer tax — but if you buy in the county across the street, you may have to pay transfer tax.’”
11. Homeowners insurance
Buyers who finance their home purchase with a mortgage will be required by their lender to purchase homeowners insurance and will pay for the full year at closing.
Even if you purchase your home with cash, you’ll want homeowners insurance anyway, as it can cover the cost of repairs in the event of a disaster. Insurance prices will depend on the insurer, but they’re usually determined by considering your home’s location, property specifics (bedroom count, bathroom count, square footage, and so on), and any special hazards in the area (flood, fires, tornados, and so on).
When shopping for homeowners insurance, it is important to get at least three different quotes if you can to compare premiums, coverages, and deductibles to get the best deal without sacrificing coverage. U.S. homeowners in 2022 are paying $1,854 per year on average for their homeowners policies.
“If you buy a house, you have to get it insured,” Helali says. Within certain lender guidelines, “it’s totally up to buyers to choose their insurance company.”
12. Mortgage insurance
If your down payment is less than 20% of your home’s purchase price, your lender will likely require you to purchase mortgage insurance. Mortgage insurance is also always required on FHA loans. This policy protects the lender if you stop making payments on your mortgage loan.
Mortgage insurance is usually a monthly fee that will be included in your mortgage payment, but in some cases it can be a lump sum that will be paid at closing — and with some loans, you will pay both a monthly premium as well as an upfront fee.
Prices are determined based on your mortgage loan amount and can range between 0.25% to 1% of that amount annually. Mortgage insurance on a conforming loan will automatically drop when your equity in the home is 22% of the original purchase price of the home, but you can reach out to your lender in writing to have it canceled when you reach 20% for owner occupied conforming loans.
Condo and HOA fees
13. HOA dues
HOA (homeowners association) dues are fees a homeowner pays for repairs, upkeep, and improvements in a neighborhood or condo association.
These fees are typically collected monthly, but some HOAs collect their fees for the full year in advance. In these cases, a new buyer will have to reimburse the seller for the fees in the same way they do for property taxes. The monthly average in the U.S. for HOA dues is $250, but they can cost upward of $1,000.
14. HOA transfer fee
An HOA transfer fee (sometimes called a document preparation fee) is different from the costs you’ll pay toward yearly dues. This one-time fee pays the HOA for the administrative costs of recording documents and preparing any paperwork related to your purchase.
This fee will vary from neighborhood to neighborhood. Average costs run between $200 and $250, the association management firm Spectrum reports. Your agent can help you figure out if there are any transfer fees you have to pay and whether or not your state puts a cap on those costs.
15. Moving company or truck rental
Whether you hire a team of professional movers or decide to do it yourself, moving can be quite expensive. Short-distance moves (those under 100 miles) cost $1,638 on average, and long-distance treks can be even more costly.
If you opt to do it yourself, the costs of renting a moving truck range from about $130 for a small, local move to as high as $3,250 for a cross-country journey. Average moving costs fall around $1,550.
16. Professional cleaning
Though sellers are likely to have completed a deep clean of their home before listing it, they may not be so careful as they move out. Real estate contracts will typically require the seller to leave the home in “broom-clean” condition, meaning floors should be swept, trash taken out, and all closets and shelves should be emptied.
Unfortunately, not all contracts may include that clause, or a seller swept up in the stress of moving could leave a bit of a mess. In these cases, buyers might opt to have the home professionally cleaned.
The cost of hiring professional cleaners will vary depending on your location and home size, but average rates run between $120 and $235.
It’s no secret that furnishing a home costs money. The average person spends around $16,000 on furniture for their new home, but that cost can vary widely between $3,500 on the lower end, and $95,000 for high-end furniture.
A good rule of thumb for saving money when you’re buying furniture in the first months after purchasing your home is to prioritize items that are absolutely necessary — like a bed frame or a mattress — before items that might be more decorative, like a table lamp.
You can also save money by following seasonal sales cycles and purchasing when furniture outlets hold sales, such as on Memorial and Labor Day holidays. Purchasing some items second hand can also save you big bucks, using sites like Facebook Marketplace and Offerup to find local items.
18. Painting and decorating
It’s natural to want to put your own stamp on your new home. Painting, decorating, and adding other personal touches (like new window treatments) all come with a cost, however. The average cost for professional painting can cost anywhere between $200 and $6,000, Home Advisor reports, with smaller jobs like kitchen cabinets or trim costing less than larger projects.
Of course, you can always get some brushes and drop cloths and get to work yourself! The average cost to paint a home on your own is between $1 and $3 per square foot.
In a home sale, sellers can usually take with them anything not considered a fixture, and that can include appliances. In most markets, however, it’s common for sellers to leave major kitchen and laundry devices behind — but there may be some exceptions. You should consult with your agent to see whether or not appliances typically stay with the house in your particular area, and make sure your contract reflects your needs.
19. Large appliances
If sellers take the appliances, or if you find that any need to be replaced upon move-in, here are some quick cost estimates for the larger items:
- Refrigerator: $1,000 to $3,000
- Oven: $350 to $15,000
- Dishwasher: $250 to $2,000
- Washing machine: $250 to $2,050
- Dryer: $200 to $1,750
20. What about small appliances or security systems?
It’s less cut-and-dried whether small appliances or home security systems stay with the home. Buyers will likely have to bring their own toasters, but built-in microwaves are likely to stay. If you want to keep a particular appliance, make sure you negotiate for it upfront and have it written in the purchase contract that it will stay.
A security system is more difficult to remove from a home, but you’ll want to make sure that any accounts have been transferred to your name, and that you are making the monthly fee payments. It won’t do you much good when the alarm company notifies the former homeowner that there’s a problem with your house, which could easily happen if you forget to transfer ownership of the platform; monthly monitoring costs anywhere between $10 and $50, on average.
First-time homebuyers might be shocked at how expensive utilities can be, especially if they were previously renting an apartment where utilities were included. If you were covering utilities yourself, you might still be shocked at how much it costs to heat and cool a bigger space.
Water, gas, electricity, and waste removal can all add up quickly, and buyers need to be prepared to add these expenses to their monthly housing budgets. They should also prepare for installation and equipment fees for internet services in addition to the monthly internet bill.
Though prices will vary based on usage and location, here’s a quick breakdown of average utility and service costs:
- Internet: $64 per month
- Gas: $100 per month
- Water and wastewater: $111.64 per month
- Electricity: $122 per month
- Trash service: $25 to $100 per month
22. Repairs and maintenance
Though buyers may be focused on some of the more immediate costs like escrow and title fees, the biggest hidden costs may be yet to come. Home repairs — especially for a significant repair like a roof replacement — could be a major hidden cost for buyers.
HomeLight’s 2022 Buyer & Seller Insights report found that 22% of buyers expressed regret about their purchase because they underestimated just how much maintenance their new home required. If you buy an older home, you can expect repairs to be needed even more frequently.
Here are some quick cost estimates for common repairs. Costs may vary based on your area and the scope of the project.
- HVAC system replacement: $1,350 to $2,300
- Roofing repairs: $150 to $400 for minor repairs, up to $7,000 for major repairs
- Roofing replacement: $8,700 to $22,000
- Plumbing maintenance: $100 to $1,000
- Mold inspection and treatment: $1,373 to $3,325
- Pest inspection and control: $250 to $600 for a one-time visit
23. Emergency fund
Given all the potential repairs that can arise with owning a home, it’s important to set aside an emergency fund. That way, you’re covered in the event that something goes wrong with your new home.
Estimates for how much homeowners should set aside in this fund range between 3 and 6 months of living expenses. It may seem like a lot, but you’ll be happy to have it on hand if disaster occurs!
All of these costs may see like a lot to navigate, but your real estate agent is here to help. Working with a top buyer’s agent can help you know which costs are typical for buyers to cover, which are more commonly covered by sellers, and what negotiating power you have in the current market.
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