What Are the Hidden Costs of Buying a Home?

October 9th, 2023  / Author: Cesar Gomez
Home Sales

Buying a home is by no means an easy process, particularly when there are so many things written in fine print that it is hard to keep track of them all. From attorney fees and realtor commissions to the fees you need to pay just to get a loan, these hidden costs of buying a home can easily make you go well over your budget if you don’t account for them.

It’s not just about your monthly mortgage payments, but everything that goes along with it – from closing to the ongoing costs of owning a home. That is why this article will list and explain the most common and most expensive hidden costs of buying a home and help you calculate them. So let’s get to it.

The Most Expansive Hidden Costs of Buying a Home - the Closing Costs

Closing costs are traditionally split between the buyer and seller, with the buyer paying the largest chunk. In a seller’s market, like it is in most of the US currently, it’s not uncommon for the buyer to offer to pay the entirety of the closing costs.

And these hidden costs of buying a home can add up to between 2% - 5%, so you definitely need to factor them in. The most common closing costs for buyers are:

1. Fees for Getting a Loan

We’re not talking about the interest you’ll be paying off during the life of your loan, but the actual fees you need to pay to get the loan itself. First, you will need to pay an application fee for your application to be processed.

Not all lenders charge this and it is often negotiable. So ask your lender what you need to pay and what the service covers. Then you will need to pay an underwriting fee – the money your lender charges you for doing research on whether you will get approved for a loan (it is often done together with an appraiser).

Then, you need to pay for the credit report, where your lender checks your credit history through the Tri-merge credit report. This credit report fee may be included in your application fee. All of these fees can be subsumed under origination fees and typically cost between 0.5% to 1% of the value of your loan.

2. Appraisal Fees

A home appraisal is the process of determining the market value of a property by a professional third party. In practice, you will need to have the house you are looking to buy appraised before you qualify for a loan. Even if you are not taking out a loan, getting the property appraised is a smart move that helps you avoid overpaying.

3. Home Inspection Fees

Home Inspection

As the buyer, you will also need to pay for a home inspection, if you wish to have it done. Unlike a home appraisal, a home inspection is about assessing the current state of the property, with a focus on finding issues with the home. While a home inspection is optional, it is generally a wise choice to have it done before signing any contract.

4. Escrow Funds (and Escrow Fees)

Your lender may require you to pay for certain items upfront – such as property taxes and insurance. These funds will be kept in an escrow account, and while this is something that you would need to pay after you bought the house regardless of what your lender requires, it is still something to consider when budgeting for your purchase.

Think of it like this – your lender requires that you pay for property taxes and homeowner insurance for a year at closing (this is a bit of an extreme example, but still plausible). Based on the value of the property, you calculate that the property taxes will be around $2,000 and $800, so you need to set aside $2,800 more to buy the house.

This is money well used and something you would probably end up paying regardless of the situation, but most people forget that they need to pay it upfront at closing, which makes them hidden costs of buying a home. On top of that, you will also need to pay the escrow fees – the cost of the escrow services themselves.

5. Private Mortgage Insurance

When you get a conventional loan and put less than 20% down at closing, your lender will likely require you to pay private mortgage insurance. The insurance is based on the amount you borrow and varies from lender to lender. The standard range of PMI is between $30 - $70 for every $100,000 you borrow.

The Realtor Commission – Calculate the Actual Cost of Your Purchase

For this hidden cost of buying a home, we are assuming both you and the seller are using the services of real estate agents. If this is not the case, you may have more leeway to negotiate a lower price, as the agent commission is often between 5-6% of the value of the property that is being sold.

calculating hidden costs

But how is this a hidden cost of buying a home when most people account for the agent commission? Because the commission is traditionally paid by the seller, yet it is not always so. The seller may ask you to split the commission as a concession and in a seller’s market, you may need to accept or lose the house.

Don’t Forget About Property Taxes

The only two certainties in life are death and taxes, right? Naturally, you’ll be paying property taxes on the home you buy, and these charges may be negligible or game-changing depending on where you live.

The issue is that some lenders roll up your property taxes with your monthly mortgage payments, which makes them easy to forget about. However, property taxes are fees independent of your mortgage – in other words, they can rise or fall independently. And, let’s face it, they are likely to rise.

Property taxes aren’t necessarily hidden costs of buying a home, but they are hidden costs of owning a home. In short, account for the property taxes you will be paying for as long as you will own the home, as they can make up a significant portion of your monthly payments.

HOA Feesg

Similar to property taxes, homeowner’s association fees are one of the constant costs of owning a home that not every buyer considers before they buy a house. While some HOA fees are truly insignificant, some HOA fees are substantial.

Make sure you know what you are getting yourself into if you are buying a home in an HOA area and calculate the costs accordingly. Additionally, there is an HOA transfer fee that needs to be paid when a home is sold. Like the realtor commission, this is something typically paid by the seller, but you may need to pay it in a competitive market to sweet the offer you make.

Moving Costs

Finally, we get to the last hidden cost of buying a home – the moving costs. While you are surely not surprised that you will need to pay for the move, many homebuyers are often unpleasantly surprised at the amount they need to pay.

Moving House Company

Moving costs can easily go into the thousands, so account for them when budgeting for the purchase. The main factors that determine moving costs are the distance of the move, the number of items that are being moved, and the season of the move.

In simple terms, the farther away you are moving and the more items you have, the more you will pay. On top of that, movers will charge higher rates during the peak season, which is summer.

Here’s a tip to save a bit of money – it is common practice to hire movers well in advance and negotiate lower rates.

What Are the Hidden Costs of Selling a House?

Similar to the hidden costs of buying a new home, there are many hidden costs to selling a house, with the two largest being – the closing costs and realtor commission. However, sellers have a much easier time avoiding these costs and keeping the profits for themselves.

SleeveUp Homes buys houses directly, without any middlemen, so there are no realtor commissions. Plus, we take care of the closing costs. So if you are looking to sell your property, contact us and request a cash offer to get top dollar for your home.



If you want to sell fast and are worried about how long the traditional process takes, and the commission and fees involved, consider working with SleeveUp Homes.