You’ve finally saved for your down payment and gone under contract, and BAM you have to cover a $500 inspection cost. What other hidden costs are lingering ahead? Everyone talks about the 20% down payment but RARELY do people discuss the actual process costs. (P.S you do NOT need 20% down! There are 3% down payment programs as well as zero down payment ones!) How much does it really cost to purchase a house? What are the hidden fees? Read on to find out! Related Content:
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- Why Open Houses Are Important For Buyers
- What You Need To Know About Buying A House In This Market
How Much Do You Need During The Process?
These costs are not the same as closing costs. Throughout the process you will be asked to pay for a number of items and they will come out directly from your own pocket. These are the most common hidden costs:
- Escrow/Earnest Deposit: this deposit is required to be put down within a few days of signing your contract. It goes towards your down payment but you will need to fork it up at the beginning of your contract. This typically runs you around 1-2% of the purchase price.
- Inspection: during your due diligence period you will complete a number of inspections to ensure that the home is in good standing. These typically run you around $500 depending on which reports you ask for and if you have any specialists come out (structural engineers, plumbers, AC guys, etc).
- Appraisal: In order to get financing, you will need to have an appraisal done. This determines the value of the property. This usually costs around $500-600.
- Survey: The lender will also require a survey to be done of the property to ensure that there are no encroachments or issues with the easem*nts. This usually costs about $300.
As you can see, these costs can truly add up! I always recommend budgeting around $1500 (+ escrow deposit) for all of the costs associated with being under contract (these can vary by state and lender). 
What Are Lender Origination Fees?
When shopping around for a lender, be sure to ask for a loan estimate with all of their origination fees and discount points written down. Sometimes they advertise an incredibly low rate only to charge you for it on the back end. I’ve seen origination fees anywhere from zero to $1500 but I wouldn’t be surprised if there were some that charge even more. When comparing loan estimates, negotiate with the lenders to see if they’ll waive their origination fees for you, sometimes they will do that in order to win the deal. This cost is included in the closing costs I mention in the next section.
What Are Closing Costs?
This is perhaps the biggest shock to everyone! Closing costs can run you anywhere from 3-6% of the purchase price! That is huge and can amount to thousands of dollars. The good thing about these is that sometimes you can negotiate the seller to cover these! During a seller’s market it is a bit harder to do that but it’s worth a try! (But, different loan types have different limits for how much a seller can contribute towards your closing costs. Be sure to confirm this with your lender). It amazes me that closing costs are not talked about as much. They can cost almost as much as a down payment in some instances yet they remain a hidden cost to many buyers out there. So what are closing costs and why do they cost so much?
- Loan processing, underwriting and origination fee – these are the fees I discussed earlier in the article. Sometimes lenders will break up their origination fee into these 3 fees to make it appear smaller. Remember to look over your loan estimate carefully.
- Home insurance – lenders will have you to pay for your home insurance up front since it is required to have your home insured to keep the mortgage. Most likely, this will go into an escrow account for you until insurance becomes due and the lender should pay for it. Be sure to double check with your insurance agent if it’s been paid the following year, many lenders are late on this and then the charge falls to you.
- Taxes– you will most likely get charged 2 months of property taxes at closing. This is because typically your lender will keep your taxes in an escrow account until your property tax is due. Since your first mortgage payment skips a month, you have to have two months worth of taxes in the escrow account (if you close in January you won’t pay your mortgage until March).
- Recording fees – the title company or law firm will charge a recording fee to record the deed.
- Loan expenses– sometimes the lender will charge for the credit report and a few other expenses.
- Lender’s title policy and endorsem*nts– this policy “protects (the lender) in case there’s an error in the title search and someone makes a claim of ownership on the property after it’s sold.”
- HOA/Condominium Association application/transfer fees– If there’s an HOA or a condo association, then you might be required to pay for an approval process as well as the transfer paperwork.
- Private Mortgage Insurance– if you put less than 20% down then your lender will charge insurance on the mortgage. Sometimes this is paid up front or it’s rolled into your monthly payment.Like I mentioned earlier, closing costs can sometimes be covered by the seller which would significantly lower your upfront home buying costs!
Moving Costs
Now that you’ve finally closed on your home, don’t forget your moving costs! You’ll need to budget for any utility service transfers, renting a moving truck, hiring movers, cleaners, etc! One of my regrets in purchasing my house was not hiring a professional cleaner to deep clean everything before I moved in! I would recommend hiring a local cleaner to meticulously clean everything (especially the closet racks and blinds which are easily forgotten and a nuisance to clean!)
