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Watch Out for These Hidden Costs of Buying a Home

Everyone knows that buying a home costs money. What some people don't know until it's too late is that there are plenty of costs that go along with the home-buying process and owning a home that aren't often talked about.

Even those who don't own a home will probably know that mortgage principal and interest as well as property taxes and property insurance are standard monthly costs of owning a home.

Before you can even close on the home of your dreams, though, there are many hidden costs you will face. And all of these costs are in addition to whatever down payment you're going to make.

Knowing what these expenses are -- and how much they will be -- is important in properly setting aside enough money to complete the purchase of your home. Here are some of the most common hidden costs of buying a home.


Most mortgage lenders will require you to set up an escrow account and pay a certain amount into it each month. Normally, this will all be set up as part of your monthly mortgage payment, so it's easy to not understand how this works or what it goes to.

Typically speaking, your escrow account will go toward paying items such as your property taxes and property insurance. Instead of having to handle these bills on your own when they come due, the escrow account allows you to spread the costs over 12 months and have the mortgage company handle payment for you.

When you purchase a new home, most mortgage companies will require you to fund a good portion of your escrow account in advance. This could include paying a full years' worth of your property insurance upfront, which could cost $1,000 or more. In addition, they'll likely require you to fund at least three if not six months' worth of property taxes.

In total, this could be a few thousand dollars that you'll need to be prepared to pay as part of your overall closing costs.

Home Appraisal

In almost all cases, lenders will require a formal appraisal to be conducted on the home you wish to purchase. This independent assessment of the home's value helps lenders to determine whether they are making a good investment by extending you a mortgage offer. It'll also help them determine the exact loan offers they present to you.

These appraisals are not free, of course, and lenders pass that cost onto the home buyers. Typically, home appraisals will cost around $400. You will likely be required to pay for the appraisal upfront, as the appraisal will be conducted regardless of whether you end up purchasing the home or not.

Home Inspections

During the home-buying process, there is typically a window following the acceptance of an offer but before the sale closes that the prospective home buyer gets to conduct home inspections. These usually include general home inspections and termite inspections, but could also include inspections on systems such as a septic, well or fireplace if the home has any of these features.

The prospective homeowner is the one responsible for not only setting up these inspections but for paying for them. While the inspections could cost a few hundred dollars each, they are well worth the cost, as they could save you tons of money.

The inspections will point out whether there are any major concerns or issues with the house you intend to buy. The results of the reports could either allow you to walk away from the home if the issues are too large, or give you the power to renegotiate the sales price based on the condition of the home.

Closing Costs

Closing costs are a general bucket of costs that get added up on the breakdown of closing fees when you sign the paperwork to finalize the purchase of your home. While there are some closing costs that the sellers will cover, most fall directly on the purchaser of the home.

Technically speaking, closing costs will include the fees for the appraisal and any money you are required to put into escrow. In addition, they may include other fees for things such as loan origination, mortgage points, private mortgage insurance (PMI) and title insurance. 

The total amount of your closing costs could vary greatly, but they general fall in the range of about 3% through 5% of the total amount of your mortgage. You will be required to pay these closing costs -- minus whatever fees you have already paid and any fees the seller is paying -- in addition to your down payment at closing.


Once you pay your closing costs and sign your name on the multiple dotted lines, you will officially own your new home. Congratulations! You will now know the exact amount that you're required to pay your mortgage company each month to pay down the amount you financed.

Unfortunately, the hidden costs don't end at this point. There are many ongoing hidden costs to owning a home. But, even before you settle into your new home, there is one big hidden cost that a lot of homeowners don't think about -- moving.

Getting the stuff you own from your old residence to your new home can be quite expensive. Even if you are lucky enough to not have to hire a moving company, you may have to spend money renting a moving truck and moving supplies. 

The cost of a move can start as low as a few hundred dollars but can get as high as a few thousand dollars. It really depends on how much stuff you are moving, how you're moving it and where you're moving from.

If you're hiring a moving company, expect to pay a few thousand dollars to move the equivalent of a three-bedroom home. This usually doesn't include costs such as buying boxes, tape and bubble wrap to protect your stuff.

If you're renting a truck to move yourself, you could save a significant amount of money. Costs will still include the truck itself and gas, in addition to all the moving supplies.

And don't forget that even if you are getting free moving help from friends and family, it's the courteous thing to do to at least buy them some hot pizza and cold drinks. 


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