15 Hidden Costs to Be Prepared For When Buying a Home
Buying a home is exciting, but the hidden costs of buying can catch many people off guard if they aren’t fully prepared. It is also expensive. Many buyers focus only on the listing price of the home. These hidden costs can quickly add up. If you do not plan for these costs, you may face unexpected stress. These costs are not always obvious, especially to first-time buyers. They include both one-time payments and ongoing expenses. Some costs, such as homeowners insurance or property taxes, are required by lenders, while others are part of owning and maintaining a home. By understanding these costs before you buy, you can avoid surprises and make better financial decisions. Below is a clear guide to the 15 hidden costs you should expect.
1. Earnest Money
Earnest money is your first show of commitment when you make an offer on a home. It shows the seller that you are serious about buying. Without it, your offer might not stand out in a competitive market. The amount usually ranges from 1% to 3% of the home’s purchase price, depending on local standards and the seller’s requirements. If the sale goes through, this money goes toward your down payment, reducing the amount you need to bring to closing. If you back out without a valid reason, you could lose this money. Always review the contract terms carefully to understand when you can reclaim your earnest money and when you risk forfeiting it.
2. Loan Origination Fee
When you apply for a mortgage, the lender charges a loan origination fee to get the process started. This fee usually equals 0.5% to 1% of the loan amount and covers the lender’s administrative costs for evaluating, preparing, and submitting your loan. Some mortgage lenders may offer lower origination fees but compensate with higher interest rates, so it is important to review the full loan estimate carefully. Some lenders let you negotiate this fee, but many will not. Always ask if the fee can be reduced or waived, especially if you have strong credit or are making a large down payment. Knowing this early can help you better estimate your total closing costs and avoid last-minute surprises during closing.
3. Home Inspections
A home might look perfect at first glance, but a professional home inspection can uncover problems you cannot see. Home inspections are critical because they reveal issues that could cost you thousands down the road. An inspector checks the structure, electrical system, plumbing, roof, foundation, and appliances of the home. A standard home inspection costs between $300 and $500, depending on the size and location of the home. You might need extra inspections for pests, mold, radon, lead paint, or asbestos, each adding more cost. While it may feel like an extra step, skipping inspections can lead to expensive repairs after you move in. It is one of the smartest investments you can make during the buying process.
4. Property Taxes
Owning a home means facing ongoing costs, and property taxes are one of the biggest ones. Property taxes can quietly take a big bite out of your budget each year. They vary based on the home’s location, size, and assessed value. Some areas reassess taxes when a home is sold, which can lead to higher bills than what the previous owner paid. In some cases, your property taxes could rise even more if local budgets change. Make sure you understand not just the current tax rate, how often you’ll be expected to pay property taxes, but also the likelihood of future increases. Ask your real estate agent or check public records for past property tax trends in the area. Planning for property taxes from the start helps you avoid future sticker shock and budget shortfalls.
5. Homeowner’s Insurance
Disasters are unpredictable, which is why having solid homeowner’s insurance is non-negotiable. Protecting your home starts with a good insurance policy that covers common risks like fire, theft, vandalism, and natural disasters. Most lenders require proof of insurance before they will approve your mortgage. The cost of coverage depends on the home’s location, size, construction type, and local risk factors like flooding or earthquakes. In some areas, you may need to purchase separate policies for risks not covered under a standard plan, such as flood insurance or earthquake insurance. Premiums can also increase over time, so factor that into your long-term budget. Always compare rates and coverage options from multiple insurers. Look at deductibles, claim limits, and customer service reviews before making a decision. A strong policy protects both your investment and your peace of mind.
6. Funding the Escrow Account
Escrow might sound like a small detail, but it can come with a big upfront cost. Lenders use escrow accounts to make sure your property taxes and insurance premiums are paid on time, which protects their investment in your home. To set up this account, lenders typically require several months of payments in advance, collected during closing. This means you could need to bring an extra few thousand dollars to the table, even after covering your down payment and closing costs. The exact amount depends on local tax rates and insurance premiums. Review your loan estimate carefully and ask your lender how much they expect to collect for escrow. Preparing for this cost ahead of time will prevent last-minute surprises and help you avoid scrambling for extra funds.
7. School Taxes
Great schools often come with great costs, and all the costs usually show up in your tax bill. If you value good schools, you may end up paying for them through higher taxes. In many areas, school taxes are separate from general property taxes and are calculated based on the value of your home. These taxes directly fund public education, including teacher salaries, facilities, and school programs. School taxes can be a major expense, especially in districts with high-performing schools and strong reputations. Be sure to ask your real estate agent for the most recent school tax figures and whether increases are expected. Knowing this cost in advance helps you plan for your monthly budget and avoid unpleasant surprises later.
8. Private Mortgage Insurance
That low down payment might help you buy sooner, but it also triggers an added cost called PMI. Small down payments come with a hidden price called private mortgage insurance. If your down payment is less than 20%, your lender will usually require it. PMI protects the lender in case you stop making payments, not you. The cost generally ranges between 0.5% and 1% of the total loan amount annually. This can add several hundred dollars to your monthly bill until you reach enough equity to cancel it. Ask your lender when and how PMI can be removed to avoid paying it longer than necessary.
9. Interest Rates
A fraction of a percentage point might not seem like much—until you multiply it over 30 years. The interest rate you lock in can either save or cost you tens of thousands of dollars. Interest rates affect the total cost of your loan over time and determine your monthly mortgage payment. Even a small increase can raise your monthly payment significantly and impact your overall budget. Shopping around for the best rate is crucial, and many lenders offer rate locks to protect you while your loan is being processed. Understand the terms of the rate lock and how long it lasts. Acting quickly during favorable market conditions can make a big difference in what you pay each month and over the life of the loan.
10. Closing Costs
Signing the final papers costs more than you think. Closing costs include lender fees, title insurance, attorney fees, recording fees, and more. Title insurance protects you and your lender from potential legal issues with the property, such as ownership disputes or unpaid liens. It’s a one-time cost paid at closing, but it can save you from major expenses later. Closing costs usually range from 2% to 5% of the home’s price. Always request a full breakdown from your lender early, so you are not surprised at closing.
11. Moving Costs
You’ve closed on the house, but the financial stress isn’t over—now it’s time to move. Getting into your new home can be expensive before you even unpack a single box. Hiring professional movers can cost anywhere from $500 to $5,000 depending on the distance, size of your home, and level of service. If you’re moving across state lines, the costs may go even higher. Even a do-it-yourself move with rental trucks, gas, boxes, and packing supplies can become surprisingly expensive. There may also be hidden costs like storage fees, temporary lodging, or meals during travel. Always budget for moving costs early in the buying process so they don’t catch you off guard after closing.
12. Home Maintenance and Repairs
Your home doesn’t come with a maintenance crew, but the responsibilities will still be there every month. Owning a home means becoming your own handyman or hiring one. Unlike renting, where landlords often handle repairs, you’re now responsible for everything from small fixes to major problems. Homes need constant upkeep to stay in good shape, and neglect can lead to costly damage over time. Maintenance tasks include gutter cleaning, HVAC servicing, lawn care, pest control, caulking, painting, and seasonal prep. Repairs like replacing a water heater, fixing a roof, or upgrading outdated plumbing and wiring can come up without warning—and usually at the worst time. These repairs cost money, often more than homeowners expect, especially if multiple issues arise close together. Experts suggest setting aside 1% to 2% of your home’s value each year to cover unexpected repairs and maintenance costs. This buffer can help you manage costs calmly rather than reacting in panic.
13. Renovations
Fresh paint and new floors may seem like minor upgrades—until the bills start piling up. Turning a house into your dream home often costs more than expected. You may want to update kitchens, bathrooms, flooring, paint, or landscaping. Even small renovations can add up quickly, especially if you hire contractors or uncover hidden issues once the work begins. Set aside a renovation budget if you plan to personalize your new space after moving in, and always build in a little extra for unexpected surprises.
14. Utility Bills
A bigger house usually means bigger utility bills. Utility costs can be much higher than you expect, especially when upgrading from an apartment. You will pay for electricity, gas, water, sewer, garbage collection, and sometimes homeowners association fees. Ask the seller for copies of recent utility bills to avoid underestimating these monthly expenses.
15. Real Estate Fees
Finally, you will have to pay a few real estate fees. Since some real estates are more money-driven than others, it’s important to work with an agency that works with your best interests in mind, like First Star Reality. While buying a home is possible without an agent, having one will help get you access to more properties, streamline the homebuying process, and reduce the overall stress of buying a home.
While the list seems pretty overwhelming, understanding these hidden costs before you sign any paperwork will help you plan accordingly and avoid any surprises. The first step in understanding how hidden costs will affect you is getting information on your home loan approval amount. This will allow you to set your budget and plan for any extra costs along the way. As long as you take the time to understand the hidden costs we mentioned above, you’ll set yourself up for long-term success.
At First Star Reality, we’re committed to providing five star realtor services to Northwest Arkansas. Our clients always come first, which is why we’ll be with you through the entire buying or selling process. If you’re ready to buy or sell a home, contact us today. Our team of highly seasoned real estate professionals is dedicated to providing exceptional, personalized service to all of our clients. Call us today at 479-267-1600 or fill out a contact form on our website.
