It’s no secret that buying a home is costly, but there are many additional costs that go into it that are commonly overlooked. When making a big decision like purchasing a new home, you want to be sure that you’re ahead of the game and ready for all of the expenses (both seen and unforeseen) that are coming your way.
I have a friend that was looking at new homes for sale in San Diego (San Diego County) and didn’t do his research. He ended up paying $25,000 over the asking price because of all the hidden costs. Know your hidden costs!
To help you with this, here is a guide of hidden costs in buying a home, and how to avoid getting scammed:
1. Home Insurance
This is a cost that depends on where you are living, but comes with buying a home nonetheless. If you live in an area that is more prone to natural disasters or crime, you should expect to pay more in home insurance in these areas. Whether or not you purchase add-ons, the national average is about $1,000 a year. It costs a lot more to insure a home than an apartment.
There are numerous unexpected maintenance costs that you could face when buying a home. A standard rule of thumb is to budget at least one percent of your home’s purchase price every year for home maintenance costs. This can include things like replacing your roof, upgrading plumbing, painting, damages, and fixing anything else that breaks or needs repairing. The amount you spend on maintenance can depend on the age of your home, the previous owner’s preservation of the house, and the climate.
Don’t forget about budgeting for everything electrical, such as setting up your telephone, electricity, gas and water. If you’re moving into a larger home or from a rental, these expenses are expected to cost more.
4. Moving Costs
Just the act of moving alone can rack up some major expenses. These can include packing, storing and transporting all of your possessions as well as yourself and your family. If you are moving further than a few cities away, such as across the state or across the country, expect to pay more in moving costs. You should budget for things like a truck rental, movers and equipment to help with the move.
5. Furniture and Appliances
Furnishing a home can certainly be costly, especially if you are moving from a smaller home. You may need to purchase appliances for your home as well. Although it can be potentially fun and exciting, it can also be financially draining to decorate and furnish your home. Assess your situation and budget for how many new things you’ll need to purchase to make your home a functioning home.
6. Private Mortgage Insurance and Title Insurance
You will have to pay for Private Mortgage Insurance if the down payment for your home was less than twenty percent of the purchase price. This insurance will protect your lender, just in case you default. Usually, once you have paid down the mortgage so you owe less than 78 percent of the purchase price, the PMI payments can be dropped. In addition, title insurance will offer you and your lender protection if you discover in the future that someone else can lay claim to the title (and thus ownership) of the house.