When Jack and I were in the thick of buying our first home, every new cost - the title insurance, the appraisal, the loan origination fee - felt like it came out of nowhere. Though they’re small relative to the purchase price, every dollar counted, and every unexpected charge stung. I remember that feeling, and it’s why I spend so much time early on with buyers, providing an overview of the whole process and highlighting points where payments are due. No one likes a surprise when they get the bill.
There are two types of hidden costs in home buying: costs that sneak up in the purchase process, and costs that are unexpected in homeownership broadly.
House Beautiful asked me about the latter - hidden costs that can turn up after a purchase, if you’re not careful in your questions - and I share a few details about antique fixtures and their potential cost implications there, but there are also hidden costs in the purchase itself that you can uncover early with a bit of advance planning.
Be sure to ask your lender for closing cost estimates early and often - those costs vary based on the timing of the purchase, the specific rate and loan product, and the location and type of home, so though your pre-approval will include an estimate, you'll find that these numbers shift a bit on a case by case basis. Don't forget to ask about whether your lender needs an appraisal fee (around $500) up front with your loan application, or as part of closing costs.
Flood insurance can also be a hidden cost, in that it is generally billed separately from your homeowners insurance, and as a lump sum (rather than part of your monthly payment). If a home is in a flood zone, check with your lender regarding their requirements and how that might change your pre-approval; it's better to know early! You can search FEMA flood maps by address on their site.
Title insurance is usually included in closing cost estimates, but good to confirm! This will be paid at closing, but will feel like an insulting additional $1,800 - pay it anyway.
Remember: if you’re hiring a home inspector, you’ll need to pay them the day of inspection, NOT as part of closing. They work for you and only you! On the other hand, in most cases, your attorney will be paid at closing and not up front.
As a homeowner, don't forget that in most municipalities, property taxes are reassessed after a sale. It can take years for the sale to be reflected in the assessor's database, but if you purchase a home that hasn't sold for a very long time, there can be a significant jump in the tax assessed value later on. Property tax rates also change over time, of course, but the assessed value is what the tax rate is applied to - so a steep increase there can translate to a larger increase in taxes due than you might expect. This won't happen right away - you can grow into your home! - but since it doesn't come up for as much as years after purchase, it's a delayed hidden cost. Assessors’ formulas and municipal mill rates can also adjust annually based on public policy changes, so keep tabs on your local government.
All my best,
Kate