Are you ready to buy a house, end the cycle of renting high priced real estate to line the pockets of some landlord, then avoid these hidden home buying costs and you will ease through this stressful time. One of the most exciting and wonderful times is buying your first house, but there are pitfalls and costs that, unless you know beforehand, can trip you up and have you exceeding your budget real fast. Knowing where these will arise and when will give you a chance to prepare your finances in advance and make informed and prudent decisions.
- Escrow Accounts
- Appraisal Fees
- Inspections Fees
- Closing Costs
- Repair Costs
Now, to discuss these points a little closer. Any good agent or broker experienced enough should have filled you in on these points before hand but if not, don’t despair, here is your list and ready guide.
What is an escrow account? It is an account that in conjunction with the principal and interest cover insurance, and taxes. Some lenders require escrow accounts regardless of how much money is put down, such as FHA loans. First time buyers should look to mortgage loan calculators and play with number so that they are aware of the hidden home buying costs such as those at homefinder.com to get an idea of what their mortgage payment will be. And even some lenders want an escrow set up before the loan closes to insure that that money is on hand for the first payment.
Lenders require appraisals to determine if the value of the house. They want to know if the value meets the amount being borrowed. Appraisers are licensed and regulated companies or people who are experts in valuing property and writing comprehensive reports, using the house itself, its amenities and comparables in the area to ascertain the value. The cost of a typical appraisal is between $250 and $500 depending on the type of house and area. This cost is on the borrower, and it can be a hidden cost in the home buying process if not planned for.
Inspection fees differ from appraisal fees in many ways, appraisals are required, while home inspections are not. Home inspections are a thorough look at a potential house, and usually done before any offers are ever made to determine if it is even worthwhile to make an offer. Appraisals are usually done towards the end to make sure it is all in line. Inspections can unearth many structural issues and help you better negotiate a deal. Decide who will be responsible to fix them, or any price reductions or home warranties that may need to be negotiated. If you do not have one, and a problem later arises, you will be on the hook for the fix, which could be in the thousands of dollars.
According to zillow.com range between 2 and 5% of the total cost of the house, so in addition to the down payment, which can be considerable, and the appraisal and inspection fees there are closing costs for many other incidentals that will arise at closing, on a $100,000 house that could be up to another $5,000 in liquid cash to cover things that come up a the end.
Well in closing you are just beginning really, now all the cost start to really add up, if this is your first house, then you are in for a real shocker, all the nickles and dimes will start to add up to real hidden home buying costs and they are not going away. For example, you love your new house but there are things that you want to change, and change now, paint for example, will cost you about $2.42 per square foot of house, so for a 2,000 square foot house that is $4,840.00. And you cannot overlook yard maintenance fees, furnace, air conditioner, water heaters, etc. Those costs are on you now, the owner, and that can be a real concern if you have used all your money for a down payment, or other costs.
As you can see there are a lot of hidden home buying costs some that are fairly foreseeable and some that creep up on you if you do not plan ahead you could be in a financial pinch and go into further debt by borrowing money. There are some ways in which you can avoid, or at least plan ahead, such as paying a lower down payment and then using some of that as a fund to address these issues, or try and find down payment assistance programs that can help you with down payments to free up reserve money and still meet your 20% down payment. Either way you should be aware of these cost and plan ahead.