Buying a home is an expensive endeavor. But in addition to expenses you’ve planned for—a down payment, closing costs, hiring movers—a few unexpected ones are likely to pop up as you’re on a path to home ownership.
To help avoid that sticker shock, real estate experts shared with House Beautiful five hidden costs of homebuying every buyer should know about:
1. Special Assessments
You’re probably already factoring in homeowner’s or condo association dues. But, be aware of any potential “special assessments” that could be in the pipeline, says Gabriela Cruz, an agent at Compass in Washington, D.C. Sellers are required to disclose any special assessments that are pending or due soon after you close on the home, she says.
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But you can go a step further, sleuthing through the association’s meeting minutes to see if there’s any talk of big projects in your condo building, like upcoming roof repairs or replacing pipes, Cruz says. If so, that could signal a mandatory assessment, while not yet finalized, could be coming in the future. Oftentimes these assessments are several thousand dollars.
2. Outdated Fixtures
If your dream home has original doors and windows that go with ornate moldings and Victorian radiators, don’t forget to ask for rough utility costs, says Kate Ziegler, a realtor with Arborview Realty in Boston. While these historic details are gorgeous, they can translate to higher-than-expected utility costs.
“Without storm windows or weather stripping in places, drafts are common and heating costs can be high,” she says.
Also, older technologies like fuses instead of circuit breakers, or brass drum traps instead of P-traps in drains, can point to hidden upgrades that might be due, Ziegler says. Check to see how old the boiler is when you tour the basement—does it need to be replaced?
“Rely on your local home inspector to point out what is a necessary versus nice-to-have upgrade,” she says.
3. Maintenance Costs
Your home is a big investment, so maintaining after you’ve actually made the purchase is a must—even if that means spending weekends on a landscaping project or cleaning your refrigerator coils.
Curious, though, how much you should be squirreling away for home maintenance costs, things like appliance repairs and plumbing updates? A sound rule is to put aside 1 to 4 percent of your home’s value annually into a maintenance fund, says Cynthia Meyer, a Certified Financial Planner with Real Life Planning. If your home is newer, you can save 1 percent. If it’s historic, you’ll want to save closer to the 4 percent annually.
So if your home is worth $300,000, you should be saving $3,000 to $12,000 each year in a maintenance fund. Some years might go by when you don’t need to pull from your maintenance fund, Meyer explains. But should a major costly repair come up, you’ll be able to cover it without relying on credit cards.
4. Earnest Money Deposit
Earnest money is a good faith deposit that shows, you, the buyer, aren’t just bidding on houses as a weekend sport. This deposit is submitted with the offer and is usually a minimum of 1 percent of the purchase price, says Tambria Peeples, a real estate agent with Willis Mitchell and Associates Realty in Georgia. On a $300,000 house, that means you need $3,000 to show you’re a serious buyer. In hot markets, earnest money requirements could be higher.
At close, buyers can redirect their earnest money towards their closing costs or down payment. And if you don’t make it to the closing table, there are scenarios in which your earnest money can be refunded, Peeples says. (For instance, if you have an appraisal contingency in your contract and the appraisal comes back lower than the sale price, you could get your earnest money back). But if you simply found another home that you liked better, the seller could keep your earnest deposit.
5. Extra Money in Savings
Financial advisers have always cautioned that you should have money left in savings after you make a down payment on a home. Now, some lenders may be requiring it, according to Melissa Cohn, Executive Mortgage Banker at William Raveis Mortgage. Because the pandemic has caused so many disruptions to employment, lending requirements have gotten stricter, she explains. As a result, many banks want to make sure you’ve got enough cash in savings (not retirement accounts) to cover three to six months of monthly mortgage payments, Cohn says. So, if your mortgage payment would be $2,000 a month, they’d want to see between $6,000 to $12,000 available in savings.
Last but not least—and we promise this is a fun one—budget for a good bottle of bubbles to celebrate with when your closing day comes around.