These lesser-known costs can have a big impact when buying a home
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These lesser-known costs can have a big impact when buying a home
A young couple stands in an empty house talking to a realtor.
Buying your first home can feel as overwhelming as it is exciting.
For many first-time home buyers, their focus is on saving as much money as possible to put towards a down payment. Of course, the bigger the down payment you can put down on a property, typically the smaller your mortgage will be.
But the down payment isn’t the only expense you will face when it comes to buying your first home. There are several other lesser-known costs involved in purchasing a property that you may not be aware of – and those expenses can add up quickly.
TD Bank outlines what you need to know about some of the unexpected costs of buying a new home.
For many of us, buying a home will be the single biggest purchase we will make in our life. To make an informed decision on what you can truly afford, you need to know all the costs involved. If you work these costs into your budget, there should be no surprises when you find the perfect property, which will help make the process as smooth as possible.
Against the backdrop of higher rates and low housing Inventory, it is especially important to speak with mortgage professionals early in the process to properly prepare and create a well-adjusted budget which includes some of the most overlooked homebuying costs, such as the following.
Home inspection
When you’re buying a home, it’s a good idea to have a professional home inspector come in and inspect the home and property to help you uncover any major and potentially costly issues with the property. In some cases, the seller may have a home inspection done prior to the property going up for sale that they could offer for you to review.
A home inspection typically covers things like the foundation, structure, plumbing, electrical, windows, roofing, and the heating and cooling system.
The inspector will provide a report on the condition of the home, identifying any problems that they may find. With that information in hand, it’s up to you to decide if you still wish to purchase the property. How much you pay for the inspection depends on a variety of factors, including (but not limited to) the size, location, and age of the house.
Property appraisal
Before approving your mortgage, the lender (i.e., your bank) will want to assess the value of the property. Appraisals provide an independent, objective and accurate valuation of the property, taking size, location, condition and even comparable sales in the area into consideration. That allows a buyer to determine if the seller is offering a fair price for the property and helps lenders know how much money to loan the buyer for that particular property.
Legal fees
When you’re purchasing a property, you may need a lawyer to help you finalize the deal, depending on the state where you are making the purchase. Some of the tasks your lawyer will handle include holding and disbursing all funds and checking the title on the property and land registry.
If you’re purchasing a condo, the lawyer will also review the building’s status certificate to be sure the information is complete and that there are no red flags, such as issues with the structure that could require major repairs, resulting in additional payments or an increase in maintenance fees.
Title insurance
Depending on your situation, your bank, mortgage broker, realtor, or lawyer may recommend title insurance when purchasing your home. The word “title” means your legal right to own a property. Title insurance protects lenders and homebuyers from financial loss created by problems with the title. One of the most common types of title insurance is lender’s title insurance, which the borrower purchases to protect the lender against potential losses if the seller is not legally able to transfer title rights. There is also owner’s title insurance, which is typically paid for by the seller to protect the buyer’s property equity.
Homeowners insurance
If you rented before buying a home, you likely already have content insurance to protect your possessions. When purchasing a home, your lender will require you to have homeowners insurance in place in order to get a mortgage. This insurance protects you in the event of fire or other damage to the property, personal belongings, and other assets in your home. In a condo, the management company will provide a certificate of insurance for the building, but you will need to arrange for condo insurance for your individual unit as well.
Creditor’s critical illness and creditor’s life insurance
When applying for your mortgage, you may have the option of purchasing critical illness insurance and life insurance. This insurance could help pay down or pay off the outstanding balance on your mortgage if you suffer a covered critical illness or pass away. However, be aware that not all lenders offer this option.
Land transfer taxes
A land transfer tax may be payable in the state where you purchased the property. Many state governments charge some type of land transfer tax or registration fee when a property changes hands. How much you pay is typically based on the property’s purchase price or its fair market value.
Mortgage default insurance
If your down payment is less than 20% of the home’s purchase price, your lender may require you to have mortgage default insurance. This is also known as private mortgage insurance or PMI. It protects the lender in case you default on your mortgage payments. The mortgage insurance premium is typically added to your mortgage and may increase your monthly mortgage payments.
Moving costs
When it comes to finding a moving company, many people search online to select a mover. It’s typically a good idea to choose a reputable company, and one way to do this is to ask friends for referrals. Get an estimate from two or three companies and make sure you are clear about the services included in the price.
When moving into a condo, you typically will need to book the elevators and provide a damage deposit to the property manager. Some buildings are now charging a service fee to use the elevator, so be sure to ask about any extra fees.
Maintenance
When buying a home, keep in mind that down the road you could have major repairs such as replacing the roof, windows, furnace, or plumbing. It’s a good idea to set up a savings account to prepare for these expenses.
With a condo, you’ll likely pay monthly maintenance fees, which are typically calculated based on the size of your unit, as well as your locker and parking space. These fees cover maintenance of the common areas and amenities — the lobby, hallways, gym, pool — as well as landscaping, snow removal, garbage collection and contributing to the building’s reserve fund.
Know your mortgage options
It’s also important that you know what is available to you when you explore your mortgage options. As your financial needs grow and change over time, consider all products and features and any conditions that apply to them, such as the ability to pay down your mortgage faster or the ability to make a lump sum payment without getting hit with prepayment charges.
It’s also beneficial to learn about mortgage programs that provide down payment and closing cost assistance through federal, state, or local county governments and non-profits or gifts from an immediate family member.
The best way to understand your options and all the potential costs of purchasing a new home is to speak with a lender early in the process. Lenders can help lay the financial foundation and educate you on what’s needed for the mortgage process so you can better plan for the future.
This story was produced by TD Bank and reviewed and distributed by Stacker Media.
