Buying a home is an exciting and rewarding experience, but it can also be overwhelming and expensive. From the down payment to closing costs, there are a variety of costs associated with purchasing a home that you may not be aware of. Whether you’re a first-time homebuyer or a seasoned homeowner, it’s essential to understand these costs before you begin the home-buying process.

This blog provides a detailed list of all the costs you can expect when buying a home. By understanding these costs upfront, you can better prepare yourself financially and make a more informed decision about which home is right for you.

Comprehensive List of Home Buying Costs

The costs associated with purchasing a home can be grouped into two basic categories: upfront costs and ongoing costs. The upfront costs are costs you pay once when you first purchase your home. The ongoing costs are the costs you pay on an ongoing basis–oftentimes for the entire time you own the home.

Upfront Costs

Down Payment

A down payment is your equity in a property when you buy it. It’s the percentage of the purchase price you don’t finance. The amount of down payment required will be a percentage of the home’s overall price and depends on what type of mortgage loan you get.

Different loans require anywhere from 3-20% down. For example, if you’re buying a $500,000 home and put 10% down ($50,000), you’d be getting a mortgage for $450,000.

It's important to note that a down payment is not a fee or an expense because as long as your home doesn't decrease in value, you will get this money back when you sell. Therefore, it is better to think of it as an investment.

Closing Costs

Closing costs are a collection of fees that are paid when a real estate transaction closes. They can range from 2-3% of the loan amount and include expenses such as:

• Loan Origination Fee (0-1% of the loan amount): A fee the lender charges for its services, and this can be negotiated
• Appraisal Fee ($500-$1,000+): A fee charged by an appraiser to verify the property is worth the amount you're buying it for
• Title Fees ($2,000-$3,500+): Fees paid to the title company who will check historical records for liens against the home and ensure it can be legally transferred to you as well as insure you in case something comes up after closing
• Discount Points or Mortgage Points (0-1% of the loan amount): Fees paid to your lender to bring down your loan’s interest rate, optional
• Processing Fee or Underwriting Fee ($300-$900 each): Lenders charge a fee for verifying your loan paperwork
• Home Inspection Fee ($300-$500): Fees paid to a licensed home inspector to assess the condition of the property
• Homeowners Association (HOA) Transfer Fee: This fee only applies to homes within a planned community that is governed by an HOA.

Prepaid Items

Prepaid items are part of the upfront costs when buying a home. They are payments made at closing to cover future home-related expenses such as property taxes, mortgage interest, and homeowners insurance. These costs are different from closing costs and are paid into an escrow account, usually three to four months’ worth, to ensure that there is money to pay these bills when they become due.

Moving

Though moving only takes place after closing, you still need to include a budget for it. The cost to move depends on whether you do it yourself or hire professional movers. According to HomeAdvisor, hiring professional movers can range from $883 to $2,552, and expect to pay more for additional services or a long-distance move.

Ongoing Costs

Mortgage Payments

Your biggest recurring house expense will almost certainly be your monthly mortgage payment. If you’re budgeting for costs, you should start with this number and build your budget around it.

Property Taxes

Property taxes are almost always included in your monthly mortgage payment in addition to the principal and interest. They are set every year by your local tax assessor's office. Property taxes vary widely, but it's easy to budget for them once you find a house you want to buy as they're shown on every listing.

It’s worth noting that the value your property taxes are based on is not the same as the price you paid for the property. It is based on the "assessed value" of your home and is set by the tax assessor. If home values go up in your area, the county could value your assessed value at a higher amount when they review values each year, which means your tax amount will likely change from year to year.

Insurance

Private mortgage insurance (PMI) and homeowners insurance are the two kinds of insurance to consider when buying a home. Private Mortgage Insurance is required by the lender if the down payment is less than 20% of the home’s purchase price. This is insurance for the lender to protect them if you default on the loan. Once you have built up enough equity in the property, typically 20% of the home’s value, the PMI may no longer be required.

On the other hand, homeowners insurance protects you by covering the cost of repairs or rebuilding if your home is damaged or destroyed by a covered event, including fire, natural disasters, vandalism, or theft.

It's important to note that homeowners insurance does not cover maintenance or improvements. So, if your water heater dies, your homeowner's insurance isn't going to cover that. But if it floods your basement and causes damage, repairing the damage to the basement likely would be covered.

Maintenance

When owning a property, consider having extra funds on hand for home maintenance, repairs, and upkeep (like that water heater scenario we just described). Setting aside 1% of your home’s value for annual home maintenance and keeping an emergency fund to handle unforeseen, urgent concerns is highly recommended.

On top of that, you also have to pay for monthly utility bills, including water, gas, and electricity. If you live in a property that is part of a Homeowners Association (HOA), you may be required to pay monthly or annual fees to cover the cost of maintaining common areas and services.

What Now?

The cost of buying and owning a home can add up quickly, so it’s crucial to prepare. You’ll want to save money, maintain or improve your credit score, and compare lenders to get the best mortgage rates possible.

But before you get started, having a professional real estate agent can make all the difference. I am here to guide you through the entire home-buying process, offering valuable insight along the way. So, don’t hesitate to reach out; let’s work together to find the perfect home for you.