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For most people, buying a home is one of the biggest investments they’ll ever make. While your house budget likely includes the down payment and monthly mortgage payments, there are several often-overlooked costs associated with buying and owning a home—and even if you’re not a first-time buyer, some of these costs may come as a surprise.
Here are a few common costs that many home buyers overlook when calculating their budget
- Earnest money and Due Diligence money... When making an offer, you’ll typically need to provide earnest money and/or due diligence money in order to show the sellers that you’re serious about wanting to purchase the home. While the amount of the earnest money and due dilignece money deposit can vary. This is something that the buyer needs to be prepared to offer when making a offer on a home. This amount is usually applied to the purchase price—but if the sale falls through due to an issue on your end, there’s a chance that you will lose this deposit.
- Closing costs. The amount you’ll pay in fees at the closing will also vary, but usually ranges from 2-5% of the home’s value. Closing costs may include title insurance, mortgage origination fees, surveys, and much more, depending on your market and lender.
- Home inspection cost is another cost the buyer is responsible for, if the home has a septic tank a septic inspection would need to be done, water testing if a well is present. Inspection cost need to be paid when inspections are performed by inspection companies. Inspections allow the buyer to know exactly what they are buying.
- Private mortgage insurance (PMI). If your down payment is less than 20% of your home’s purchase price, your lender will generally require you to have PMI. While PMI payments typically only cost 0.5-1% of the loan amount each year, this can quickly add up to thousands of dollars in extra expenses.
- Mortgage loan interest. When determining the interest rate for your mortgage loan, lenders take your credit score into account—and if your score is on the lower end, you may end up paying thousands of dollars in additional interest over the life of the loan. Therefore, taking time to improve your credit score before purchasing a home can help you save a substantial amount of money over time.
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