Buzz
The housing market looks pretty bleak for the foreseeable future. Your home is likely the most expensive asset you'll ever own, and that price tag goes beyond the initial asking price. For most of us, it's the largest investment we'll ever make, and the most significant debt we'll ever take on—and that's just the start, before factoring in all the unexpected costs that may not be immediately visible.
While there's the price of the house itself, there are also many additional recurring and upfront expenses that can catch you off guard. Some of these costs aren’t exactly “hidden,” but they are often overlooked, especially for first-time buyers. Understanding what to expect is key. Let’s dive into the details.
Home Inspections
You’ve made an offer on a house, and it’s been accepted. Congratulations! Now, inspections will be your first big expense. And yes, you may need more than one inspection.
Before you close on your new home, you’ll need to schedule a comprehensive inspection. Your lender will likely require this as well. At a minimum, you should get a general inspection and one for wood-damaging insects (like termites), unless that’s part of the general inspection. The general inspection could cost a few hundred dollars, and the termite inspection will likely be around $100. Depending on the home’s age and condition, you might also want to include a sewer inspection, which could cost a couple hundred more.
Altogether, these inspections might exceed a thousand dollars, but it's a small price to pay to avoid buying a property that could end up costing much more in repairs. If the home needs extensive work, you could renegotiate the price, back out of the deal, or just factor the additional expenses into your budget.
In some states, if a previous buyer pulled out after completing a home inspection, the seller is obligated to share that inspection report. If your mortgage lender doesn’t require a new inspection, you could skip it. But it’s always a smart idea to do your own inspection anyway. After all, this is a big investment, and it’s better to be safe than sorry. You should also be present during the inspection to observe things firsthand.
Occasionally, lenders will also require you to pay for a property survey. This could add a few hundred dollars to your costs, but it provides a detailed, professional map of your property’s boundaries.
Closing Expenses
Once your offer is approved, your lender will start processing the necessary paperwork and provide you with a breakdown of your closing costs. Typically, these costs can add an extra 2% to 5% of the home's sale price. For example, if the house costs $200,000, you can expect to pay between $4,000 and $10,000. Here's what generally makes up these costs:
Lender charges: This category encompasses everything from admin fees to wire transfer costs, and even charges for pulling your credit report.
Appraisal: Home appraisals are significant expenses, usually several hundred dollars, as the lender needs to ensure the home is worth the purchase price.
Title or legal fees: This covers government filing, escrow, notary fees, and any additional costs involved in transferring the deed to your name.
Escrow payments: You may need to pay a portion of your property taxes and insurance premiums into an escrow account right from the start.
Interest: Interest charges will be prorated from the day you close until the first of the next month.
Using a closing cost calculator can provide you with a more detailed estimate of your costs. However, in most cases, you should budget for several thousand dollars in closing costs in addition to your down payment when finalizing your home purchase.
Plan ahead for recurring property taxes and insurance fees.
Monthly mortgage calculators help you figure out your monthly mortgage payment, which includes the interest. Your property taxes will fluctuate based on the value of your home and your location, but WalletHub reports that the typical U.S. homeowner pays approximately $2,690 annually in property taxes.
We explain what the current 7% mortgage rate means for your monthly payments here. You can use an online mortgage calculator to determine how much the current rate will influence your monthly payments.
Depending on your loan agreement, you might contribute these payments monthly into an escrow account (also called an impound account). If so, you'll pay your lender, who will then handle your taxes and insurance. If you don't have an escrow account, you’ll pay them directly when they come due.
No matter how or when you pay, ensure you include this ongoing cost in your budget. The good news is you can deduct both your property taxes and mortgage interest from your taxable income, which means you'll pay less in taxes each year.
Always keep some funds set aside for maintenance and repairs around the house.
When your air conditioning breaks down as a renter, it’s a hassle, but you can just contact your landlord and hope they handle the situation. As a homeowner, it’s a bit tougher since you’re the one who has to cover the cost of the repair yourself.
Most people are aware that owning a home means taking on the responsibility for maintenance costs, but you might be surprised at how much some of these repairs can set you back. From jammed garbage disposals to leaky faucets and peeling exterior paint, these are just a few of the repair projects that often catch first-time homeowners off guard.
Every home is unique, so there’s no universal formula for determining how much you'll spend on maintenance each year. The typical advice is to set aside about 1–4 percent of the home’s value annually, which translates to approximately $150–$500 (or more) per month depending on your location and the type of home you have. For a $200,000 home, this would be around $8,000. While this might sound like a lot, treat it as an emergency fund for your home, even if you don’t end up spending all of it.
Expect to see an increase in your utility bills.
Let’s say you moved out of your cramped apartment and into a spacious three-bedroom house. While the extra room is fantastic, it also means your utility bills will likely be a bit higher.
Your gas, electric, and water bills might not necessarily be higher when you purchase a home, depending on what you’re used to paying. However, they often end up being more expensive. Additionally, your landlord might have covered certain costs (like trash pickup or water) that you’ll now have to pay for as a homeowner. To get an idea of what your costs might look like, consider asking the seller if you can review their previous bills. It might be a long shot, but it’s likely the easiest way to estimate your future expenses.
The key takeaway
Purchasing a home has traditionally been seen as a smarter financial move than renting. The common argument is that when you rent, you’re simply wasting money, but when you buy, you ultimately own your property. While this may seem true if you compare the rent to just the base cost of your mortgage, there are many additional expenses that can add up. Just like your rent, these extra costs don’t really ‘buy’ you anything; they’re simply part of the price of homeownership.
Despite these additional expenses, purchasing a home remains a better long-term financial decision than renting in many areas. You’ll want to carefully calculate the numbers yourself, taking into account all of these hidden costs. (The New York Times rent vs. buy calculator is one of the best tools available for making these calculations.)
Once you’ve made the decision to purchase a home, be ready for the full cost of ownership. Take these extra expenses into account, and you should be on track. Also, make sure you avoid these common financial mistakes when buying a home.
