5 hidden homebuying costs

Beware of these sometimes-unexpected expenditures that pop up before you set foot in your new house.

By MSN Real Estate partner Dec 6, 2013 12:09PM

Cash payment © Getty ImagesBy AJ Smith, Credit.com

 

Most of us have a basic understanding of what goes into buying a home. After saving enough for a down payment and getting pre-approved for a mortgage, you can start your home search and make an offer once you’re ready. But before you ever set foot in that new house of yours, there are going to be quite a few costs that come up, many that you may not be expecting.

 

In order to prepare yourself, you should be fully aware of all the costs that go into buying a home. That way, you won’t be surprised at any point during the process.

 

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1. Earnest deposit

Although the earnest deposit is part of your down payment, it has to be made right away. This deposit is required in order to show that you the buyer are indeed serious about the property. It’s generally in the amount of 1 percent of the value of the property’s sale price or $1,000.

 

It is just a deposit, though, so you can get that money back up until the point when you remove your contingencies.

 

2. Home inspection

Although the home inspection is generally considered part of closing costs, it’s another fee that you have to pay upfront. Home inspections are essential to the buying process because they could uncover any potential structural flaws in the property. Home inspections generally range from $300 to $500.

If you end up walking away from the property because of something you found in the home inspection, you’ll be out at least $300.

3. Renovation and improvements

If your home isn’t in the best of shape, you may want to consider renovating it before you move in. It’s a lot easier to put new floors in or paint the walls before you have all your furniture moved in. Most homebuyers tend to forget about the initial renovation costs, so be sure to factor that into your calculations.

 

A good rule of thumb is to assume that renovations and improvements will total about 1 percent of your purchase price. Of course, this can increase drastically depending on the condition of the house.

4. Move-in costs

Any time you’re moving into a new home, there are lots of major expenses to consider. Everything from buying boxes to hiring an actual moving company will add up. And the farther you move geographically, the higher your costs will be.

Keep in mind that if you’re moving into a community with a homeowners association, you will likely have to pay an initiation fee. Make sure that you get the details ahead of time because you don’t want to be fined by your HOA in your first week at your new property.

 

5. New appliances and utilities

Some houses come with a refrigerator, washer and dryer, but if yours doesn’t, be sure to factor that into your calculations. You will also have to contact utility companies and cable-TV/Internet companies in order to get your new service hooked up. There may be small fees for this, as well.

 

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28Comments
Dec 9, 2013 12:39PM
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I made a major move in 2010 from Upstate NY to Sarasota, FL.  I did almost all my own packing using boxes from stores.  Liquor stores with their cardboard dividers are great for packing glasses, vases, and other breakables.  Also I used the paper from my shredding machine as packing material and asked all my friends to save theirs for me.  Worked great.  A huge job done by myself but well worth the savings!  You can do it too!
Dec 9, 2013 12:10PM
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Agree 100% with "gatogrande12". Doesn't anyone screen these articles?
Dec 9, 2013 9:28AM
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Hidden Costs?? Seriously.  So there are people who don't know that the seller isn't going to pay for you to move all your stuff into your new home, or that you have to buy your own appliances and furnishings, or that the utility companies charge a deposit fee to start service, and that you will have to pay for a new roof or anything else that breaks?? Holy cow, I guess they don't realize that they will have to pay property taxes either, right?  I'm not seeing anything hidden here.  If you don't know these things go back to square one and get yourself educated before buying a home.  I don't feel sorry for people who go into the biggest purchase they will probably ever make clueless without bothering to look into the procedure.  I know women who spend more time trying on clothes on a shopping trip than they did researching buying their homes and blame "the bank" for their ignorance. 
Dec 9, 2013 12:01AM
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I worked a couple of years in the new home warranty department for a nationwide residential home builder and once in awhile we would get some very interesting warranty repair requests.  

 

We would provide the new homeowner with a very informative binder & dvd that included information on their new home and numbers to the local utility companies with instructions on when to transfer the utilities and we even included monthly, quarterly & yearly home maintenance check lists with maintenance instructions at the time of the final walk prior to closing. 

 

Some of the most interesting/absurd new home warranty repair requests were from new homeowner's that had always rented apartments and had never rented or owned a single family home before. For example, we would receive occasional requests to schedule HVAC filter replacements or change burned out light bulbs.

 

Also on a few occasions a new homeowner would complain that they had no running water and this was due to not transferring the water/sewer service into their name, there were a few new homeowner's that actually assumed the water & sewer service were either free or included in the purchase price of their single family home.  

 

I would suggest to any first time home buyer to educate themselves about home maintenance, repairs and improvements by purchasing readily available books on these subjects at one of the nationwide big box home improvement stores. I would also suggest researching all costs/pricing associated with home maintenance, tools, repairs and improvements prior to buying a home for the first time.

Dec 8, 2013 6:59PM
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Just Friday past I was told by my Lender _ a Federal Credit Union_ that my credit score dropped big-time by getting an airline credit card (and 40,000 free fly miles) which can save me over $1000.

I replied that my rate for a 7/1 ARM was locked...so there should be no problem...but then the loan officer got a little nervous...called their HDQ office...asked me to send her back her own email where she quoted me the lower 'locked' rate.  Said she hoped they would honor it...etc.

Hey...either it is locked or not !  Why are these C. Unions and Banks so creepy and crafty when they say how much they want to help you ?  Money !.!!!!.They want to clip you for a higher rate at the last minute...even if they put shame on their own name and credability.

Dec 8, 2013 6:25PM
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There are no "hidden" costs.  Read the disclosures and the closing documents for a complete accounting of what you are paying.  Hidden and stupidity do not share the same definition.
Dec 8, 2013 6:12PM
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The hidden costs come from future maintenance you need to save for from the very first year you purchase your house. Put 1% of your homes cost in a savings account every year so you can prepare for a new a/c, roof, water heater, paint, lawn, plumbing, etc. 
Dec 8, 2013 4:44PM
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None of those costs are hidden. They are in fact more obvious than the bunch of mysterious closing costs that you will be paying. If you don't know what you are doing or have not done your homework, don't buy a house. 

Earnest money is what used to be called a binder. It adds nothing to the purchase cost or you out of pocket cash, if the purchase is consummated.

The bank is going to have the house inspected as part of the house assessment.  You pay for that. If you want your own inspection, you will also pay for it. Mine was $400 in May 2013.

If you don't get appliances with the house, obviously you are either going to do without them or buy some.

Most people decorate a house. You don't have to. Decoration - painting, blinds, etc. are options that you can avoid or put off, if you don't have the funds to pay for them. Curtains, blinds, painting, etc. can run thousands of dollars.

Moving costs have to be paid in one form or another unless you have nothing to move.

Setup costs like initiating utility services are barely touched on. They cost me $200.

Big surprise items are potentially the cost of property taxes, home insurance, home owner associations and condo assessments.

A house in a flood zone will cost you four times as much to insure as one not in a flood zone. A house that can't flood such as one at the top of a hill costs nothing for flood insurance that you don't need or buy.

Home owner association fees can be substantial. A norm might be $500 for the Houston area. Mine is $75. The golf community's nearby is $1,800.

Property taxes vary wildly between communities and school districts. In some areas you get special discounts for being a veteran, being disabled and/or being a senior. My house in my area has property taxes of $748 a year. In my daughter's neighborhood It would cost me $2,800 for the same value house. She also pays $500 for 100 year flood plane flood insurance, while a few streets over the same house in a flood plane cost $2,000 for the same insurance. I live on a hill and pay $0.    

If you are buying a condo, you have zero control over maintenance costs and special assessments.

If you are moving from other than another home you'll probably need tools, gardening equipment, and a lawn mower or lawn tractor. Depending on your situation that can run from a few hundred to thousands of dollars. 

When you figure out how much a place will cost you error on the conservative side. Being wrong and having money left over will never hurt you. Under estimating costs can kill the deal and/or put you in a hole so deep that you'll never get out of it.

My advice would be to spend the absolute minimum that you need to to get in the house. Let the dust settle before buying optional items. You want to get a feel for how much the house really costs on a normal day to day basis, before draining your bank account for whatever. Avoid taking on debt unless you have no funds and have to replace something like a $1,000 water heater.


Dec 8, 2013 4:43PM
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I had an account at my local Credit Union called Central One Federal Credit Union. As most banks do my wife and I received offers for Gold and Platinum cards one of which we opened. Upon doing a monthly review of our credit (Which they never told us they pulled) Central One found that we had opened a new credit card with another bank. Their action was to lower our credit limit from the $15'000 that we had on our card with them down to $10'000. Since we had a balance of $12'000 on the card that put us over our balance which caused our credit score to plummet. When I tried to explain this to them ...they more or less told me that they did not care. It wasn't until I called the state attorney general’s office that provided the correct channel for compliant, that they then called an apologized as if it meant nothing. Our credit was screwed for almost two years and they laughed about it.... CENTRAL ONE FEDERAL CREDIT UNION……

Dec 8, 2013 4:43PM
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I had an account at my local Credit Union called Central One Federal Credit Union. As most banks do my wife and I received offers for Gold and Platinum cards one of which we opened. Upon doing a monthly review of our credit (Which they never told us they pulled) Central One found that we had opened a new credit card with another bank. Their action was to lower our credit limit from the $15'000 that we had on our card with them down to $10'000. Since we had a balance of $12'000 on the card that put us over our balance which caused our credit score to plummet. When I tried to explain this to them ...they more or less told me that they did not care. It wasn't until I called the state attorney general’s office that provided the correct channel for compliant, that they then called an apologized as if it meant nothing. Our credit was screwed for almost two years and they laughed about it.... CENTRAL ONE FEDERAL CREDIT UNION……

Dec 8, 2013 3:55PM
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This is written for those who have never purchased.  Renters don't understand lots about home ownership.  When something breaks down they expect someone else to pay for the repair.



Dec 8, 2013 2:35PM
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Basically all Banks are the same and that does include credit unions and any regulated mortgage outfit. I have been involved with several of them in my 70+ years. I currently have a mortgage with Wells Fargo, They slid in a contract from the company that was supposed to do the repairs on my home. I did well over half of the repairs myself paid for all of the materials and still was forced into paying them well over 2/3 of the cost of the repairs. The repairs were supposed to cost about 12,000 but I spent well over 25,000 and still had to pay them for some of the materials that I bought myself.

Now, I have another mortgage on a different home but it is through the previous owner, Better rate, did all of the repairs myself, wasn't forced into buying mortgage insurance. The repairs were to pay the down payment and my only expenses were taxes and insurance, and of course the payments. It has worked out to be a great deal for all concerned.

Dec 8, 2013 2:32PM
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I don't think the items in the article are exactly 'hidden'.
But here are a few that are hidden: 
Real estate brokers who want to charge in a fee of $250 or more at closing for 'digitally archiving the transaction records' (something they are required to do anyway).  Refuse the fee if you didn't agree to it in the fine print when you agreed to list your house.

As a buyer,  refuse any fee added into the transaction by the buyer's lender.  They have no relationship with you and therefore no right.

Any bill tendered to escrow that you did not authorize.  They can be rather mundane sounding and not suspect unless you ask exactly why these things are charged and why you are expected to pay.

In short,  be suspicious of seemingly official actions surrounding your transaction and don't authorize anything you don't fully understand.

The whole idea that you will be protected by laws is from another era.  Corporations large and small will try anything because they mostly get away with it,  and if they don't,  there's no penalty for trying.


Dec 8, 2013 2:25PM
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what a min.

you guys are saying the loan officer is a crook because they didn't tell you how much it was going to cost you to

1. Move your stuff in?

2. Buy appliances?

3. make renovations that you want?

4. make an earnest deposit that you do BEFORE you even see a loan officer?

5. Get a home inspection that ISN"T REQUIRED but RECOMMENDED when buying a home.


How are ANY of these things ANYTHING to do with the banks?

You can dislike banks all you want but none of the above listed items have squat to do with the bank.


You want to add some more stuff?

1. hooking up electric

2. hooking up cable, internet, phone, gas, satellite.

3. furniture

4. new decorations to fit the home

5. lawn equipment if you didn't have one before

6. typically 3 months reserve of every bill you have in an account that you don't touch until after the loan goes threw.


I could keep going but again none of this stuff is part of the banks loan process.  What you want the loan officer to do go threw the home your in figure out what furniture you have and estimate your moving costs?  Maybe help you move or rent a truck?


The purpose of the bank is to loan you money.  That's it. Nothing more.


I've NEVER gotten a loan from a bank that EVERYTHING wasn't written right there in black and white with every cost clearly written in the contract.


If you've gotten a loan signed paperwork that you didn't read OR gotten an attorney for the things that you didn't understand then that's your stupidity not the banks.


If your neighbors lost their homes then they lost the homes because they didn't make the payments on the homes.  Pretty cut and dry.  The bank wants the money they don't want the house.



Dec 8, 2013 1:48PM
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You are right on...XMirage2kx. They are all crooks and hide everything, in spite of the fact that you have a perfect credit. The loan "clerks", I would not call them officers, work on commission and they will take as much of your money as soon as possible! Stay away from U.S. Bank, two of my neighbors lost their homes. I will sell my home this coming summer and buy a motor home and visit America!!
Dec 8, 2013 1:30PM
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If these 5 things are "hidden" costs then you need to keep renting.
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