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Anticipating the unanticipated: Hidden costs of home buying

Posted March 18

Calculating your mortgage payment,

When it comes to most purchases, the price the customer sees is the final cost of the product.

A $5 value meal at the drive through will cost $5 with some added for sales tax. There won’t be closing costs on the way out of the parking lot, customers won’t get home with their food and need to pay an inspector $200 to make sure the fries are properly salted, and they won’t be required to pay insurance on their double cheeseburger.

Since most purchases come with few, if any, significant hidden costs, it can be easy for first-time homebuyers to be caught off guard and ill-prepared to handle those unanticipated costs.

"The unexpected cost of buying a home can be daunting," said Scott Black, who recently purchased a home in Wake County. "We didn’t realize just how expensive it was until we started running the numbers."

He added, "Everything from pre-paid taxes, pre-paid insurance, attorney fees, inspections, appraisals and a whole bunch of other closing costs added up to a lot of money beyond the price of the home. If our agent hadn’t prepared us for the fees, I’m not sure we could have been able to afford to close."

Unanticipated costs

Obviously the expected cost of buying a home is the negotiated price of the home. This, along with the down payment made by the buyer, determines the size of the home loan and, therefore, the amount of monthly mortgage payments.

Local real estate agent Linda Prime, of Raleigh United Real Estate, explained that homebuyers need to look much deeper into their budget than just determining if they can afford their mortgage payment.

  • Private mortgage insurance. Those who cannot make a down payment of 20 percent or more will likely have to pay PMI along with their monthly mortgage. This can add hundreds of dollars to the expected month-to-month cost of the mortgage.
  • Homeowners association fees. Not all neighborhoods have HOAs, but HOA fees should be factored into budgets. HOAs often pay for neighborhood amenities, like pools, playgrounds, and community or fitness centers. HOA dues can range from less than $100 per year to more than $300 per month, depending on the community.
  • Home insurance. The average annual premium of home insurance is $952, coming to $79.33 monthly. That’s a bit of a jump from the average of $12/month for renters insurance. Keep in mind also that most lenders will take one year’s worth of insurance up front at the closing table and also take an additional 3 to 4 months of the following year’s estimated premium and put it into escrow so that there is money to pay for the future bill.
  • Utilities. Since most first-time homebuyers are moving into larger living spaces, its likely utility costs will be higher. Also, some rental properties cover some utilities or services (Internet or cable TV) by rolling the cost into the monthly rent payment, which will not be the case with a mortgage.
    ○ Buyers can estimate the utility costs of a new home by asking for old utility bills from previous owners.
    ○ Websites like MyUtilityScore.com can give potential homebuyers insight as to how efficient a home is compared to others in the neighborhood as well as what to anticipate paying for utilities.
  • Warranties. When buying a home, most warranties range from $400 to $700, and provide peace of mind in case something needs repair while the buyers are settling into their new home. Newly built homes usually come with a one-year warranty for appliances and systems (water, heating and air conditioning) and a 10-year warranty (provided by the builder) for structural elements of the house. ○ Warranties generally include:
    ○ Kitchen appliances
    ○ Garbage disposals
    ○ Plumbing
    ○ Water heaters
    ○ Ceiling and exhaust fans
    ○ Heating and electrical system components

It's important to note what a warranty will and will not cover, and the qualification factors to use the warranty. A warranty can help cover many things that would not typically be covered by a homeowner’s insurance policy. Be sure to check different warranty companies to see the different coverage types.

  • Maintenance/lawn care/repairs. Homeowners are entirely responsible for the upkeep of their home. First-time homebuyers need to anticipate the cost of purchasing equipment like a lawn mower, tools, and even simple things like a garden hose or stepladder.

Buying a home is exciting enough without the surprise of hidden costs. Be prepared by anticipating these expenditures ahead of time, and go out and buy or build with confidence.

This story was written for our sponsor, Raleigh United Real Estate.

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