You’re smart. You’ve looked at what you have in savings. You’ve gotten your monthly budget down to a science. You’ve even gotten preapproved for a mortgage (and if you haven’t, you probably should).
So now you know EXACTLY how much home you can afford, right?
Unfortunately, no. There are many hidden costs that come with the purchase of a home, and these can cause headaches for new homeowners who didn’t plan for them. We’ve come up with a list of nine hidden costs that you need to think about when planning your shopping budget. Odds are that you won’t deal with all of them, but you’ll deal with at least a few of them.
1. Closing Costs
The Augsburgers were ready to buy their first home, a $200,000 property in Fort Lauderdale…and they planned on paying just that: $200,000. Unfortunately, they discovered that necessary appraisals, inspection, property transfer taxes, title insurance, and attorney fees weren’t free. Expect to pay $2,500 for these closing costs.
2. Private Mortgage Insurance
The family had put down 12% on the home, and supplied the other $176,000 with a mortgage. If they had opted to make a 20% down payment instead, they could have gotten out of paying for mortgage insurance, which protects the lender in case the Augsburgers couldn’t make their payment. Mortgage insurance is typically between 0.3 and 1.5% of the mortgage value, so they pay an additional $1,176 a year for insurance. Mortgage insurance rates are based on loan-to-value and credit score. The higher the LTV and the lower the credit score, the higher your mortgage insurance rates will be.
3. Mortgage Interest
All loans come with interest payments, so you need to calculate the payments on top of the principle. The Augsburgers will pay back the $176,000 (the principle) across 30 years, but they must also pay a fixed interest rate of 3.96% (rates differ based on mortgage and length). They will pay $4,164 yearly on mortgage interest. This is included in your standard mortgage payment (your principal and interest payment), but it’s good to know what the real cost is.
4. Home Insurance
The Augsburgers dedicated a significant chunk of money to getting into their first home, and they weren’t about to let a natural disaster or other calamity take that away. Home Insurance prices differ dramatically depending on a variety of factors, including condition of the property, but it’s safe to say our protagonists pay around $2,000 a year for coverage.
5. H.O.A. Fees
The day after they had moved in, the Augsburgers found an envelope in their mailbox, from the local Homeowner’s Association (H.O.A.). These groups help to maintain property values by performing upkeep of sidewalks, landscape, and other neighborhood fixtures. And they certainly expect you to contribute. These fees usually range between $200 to $400 a month, so the Augsburgers found themselves out another yearly $3,600. And no, you can’t ignore them. They can move to initiate a foreclosure on your property.
The Augsburgers had lived in an apartment previously, saving up to purchase their current home. One thing they noticed quickly when the weather got sticky was that it took a lot more electricity to cool an entire home (and a lot more water to fill their awesome bathtub). All told utilities, ended up costing the family $3,000 for the year.
Mr. Augsburger’s brother called, asking if they had a spare room he could borrow while pitching his mixtape to the Miami-area record labels. Mrs. Augsburger said “no” but Mr. her husband couldn’t turn his brother down. Looks like they needed to tackle the leaky ceiling in the guest bedroom earlier than expected. It would cost $800.
8. Property Tax
At the end of the year, Mrs. Augsburger sat down to get their taxes in order. Broward County features the state’s second-highest property tax rate, at 1.33% (it can vary from one neighborhood to the next, however), meaning the family would add $2,340 to the county’s coffers every year.
If you’ve been keeping score, you’ll know the Augsburgers paid more than $19,000 on top of the price of their home that year. Again, it is doubtful that you’ll run into all of these hidden costs when you buy a home, but understand that you will deal with many of them. Take this into consideration when planning your home-buying budget.