While not necessarily an extra cost, an escrow account is something for a buyer to keep in mind. In residential real estate transactions, escrow is used in multiple ways. First, a buyer may deposit money into an account held by a third party, affirming their commitment to the deal, with the funds used for a down payment and other costs related to the purchase. An escrow account can also be used long-term following the mortgage closing to hold insurance and property tax payments, for example, with the deposits added as part of the monthly mortgage payment.
Inspection
Even if it is not required, hiring a professional to perform a home inspection is often recommended, particularly if the buyer is purchasing an older home. An inspection can turn up significant issues that slow down the closing process until they are repaired by the seller, lower the cost of the home if the buyer decides to take on the repair, or even upend a deal altogether. Some examples include a failing roof, structural damage and the presence of unsafe levels of carbon monoxide, radon or mold.
Taxes and Fees
If you’ve ever purchased a car, you know your down payment isn’t your only upfront cost. You have to factor in taxes and a slew of fees — and the same goes for buying a home. Taxes vary depending on the state and municipality, of course, but either way, expect them to be sizable. There are also origination fees for the loan, title services and state- or municipality-specific fees. If the property is part of a homeowners association (HOA), expect to pay your membership dues, as well.
Home Insurance and Warranty
Buyers are not legally bound to purchase home insurance, but your lender may require it as a condition for financing. Regardless, it is highly recommended to have home insurance for the obvious reason that misfortune can occur, including incidents that cause structural damage or destruction of personal belongings. Homes in areas more vulnerable to natural disasters may require more specific policies, such as flood and wind insurance in states subject to hurricanes. Depending on the home’s value and risk factors, policy costs will vary. A home warranty, meanwhile, can cover certain systems – e.g., electrical, plumbing, water heater and major appliances – that are damaged or fail because of normal wear and tear. Your new home may come with an existing warranty to cover any unexpected issues that were not found during the inspection.
Maintenance
Ideally, you’re moving into a pristinely kept home that received love, care and possibly a few updates before you moved in, but that’s not always the case. Perhaps you got a deal on the home because there were a few unsightly but fixable cosmetic issues, such as ugly carpeting or rooms in need of painting. Are there loose floorboards, broken cabinet doors in the kitchen, a leaky utility sink? Repairing those issues now might add to your expenses, but it can be easier to complete those items when the house is still empty. Conversely, you may be able to negotiate certain repairs before the sale is completed.
Moving
Moving can be an expensive and time-consuming project, depending on how much is making the trip from your current location to the new one and how far you’re going. A cross-country trip using professionals will likely range in the thousands, while a move to a nearby neighborhood might be doable with some friends and a rental truck. If you’re moving for a new job, sometimes the employer will subsidize all or part of the move, but it’s no guarantee. Regardless, moving expenses are something to budget for as part of the homebuying process.
One positive about moving is it often marks the end of what can be a long, stressful period. Once it’s done, it’s time to enjoy your new home.
