Most home buyers put in the effort to save for their down payment, but that is only a fraction of the cost they should expect for homeownership. There are many other lesser-known costs that can sometimes come as a shock to buyers. Make sure your home shoppers plan accordingly for the following extra expenses, including:
Earnest money: The amount of earnest money required varies by state and local market. In a slower market, $500 to $1,000 might suffice. But a home with multiple bids may require a larger deposit of 2 percent to 3 percent of the offer price. Reassure buyers that the earnest money they put down will go toward the purchase of the home. To avoid being scammed, experts recommend making sure buyers receive a receipt and confirm the deposit is payable to a reputable third party, such as a real estate brokerage, legal firm, escrow company, or title company.
Inspection fees: Home inspections aren’t required prior to closing, but they are highly recommended in the real estate industry. The typical inspection may cost between $300 to $500, according to the U.S. Department of Housing and Urban Development. The home inspector may be able to spot any problems in the home and may be able to prevent a more costly repair later on.
Closing costs: These costs cover things like notary services, title company search fees, attorney expenses, real estate transfer taxes, insurance premiums, and more. Again, these vary by state and on the value of the property. Financial experts recommend setting aside 2 percent to 5 percent of the purchase price for closing costs. These funds must be available on closing day.
Mortgage reserves: Home buyers shouldn’t close on a home without a dime left in the bank. They’ll likely be required to show extra personal financial reserves, which are accessible liquid assets available to withdraw from after their mortgage closes. Lenders have different requirements, and some may not require it. But many lenders often want to see some type of assets left to show that buyers can continue to make mortgage payments even if they face a financial setback.
Moving costs: The cost of hiring a moving company or renting a truck can add up, too. And buyers will want to buy new furniture or items to decorate their home, so those costs will need to be factored in as well.
Maintenance costs: Many financial experts recommend putting aside 1 percent of a home’s value per year for maintenance expenses. On a $250,000 home, for example, that would mean budgeting $2,500 annually.
Source: “The Unforeseen Costs of Buying a Home,” AOL Finance (Nov. 1, 2017)