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Hidden expenses when buying a house

Last updated on February 1st, 2021 at 08:34 am

When buying a house, there are many costs. Here are some expenses to keep in mind when calculating how much you are able to spend every month.

There could be hidden and unexpected expenses when buying a house.

Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is a very important factor. If you are putting down less than 20% of the house purchase price and you are borrowing through a conventional lender, PMI usually costs from 0.5% to 1% of the original loan amount. This could add on thousands of dollars depending on your negotiated rate, length of PMI, etc. You can remove paying PMI once your LTV (loan-to-value) ratio is 80%, or the lender is required to take it off when the LTV hits 78%. This could be achieved by the home value increasing, remodeling, or prepaying the loan. Don’t assume the lender will know that any of these have taken place and let them know in writing so they can remove the PMI. You may need to have a new appraisal and you could incur the cost of that.

Homeowners’ Association

HOA (Homeowner’s Association) Many communities have an HOA fee and that fee can vary greatly depending on the amenities, services they provide, and where you live. These fees are usually required by all residents and paid monthly. Occasionally, there might also be a one time fee to cover “other” expenses.

Property Taxes

Another thing to remember is Property Taxes. Property Taxes are calculated differently depending on what part of the country you live and the assessment ratio.  Also, locations within a state differ across county lines and school districts.  You can either roll the taxes into your monthly payment or pay them separately every year, but either way this will be an ongoing expense and will tend to increase over time. This tax will be an ongoing expense as long as you own the house and continues even after you have paid off your mortgage. Some people qualify for property exemptions, but not many. You should plan on having this as a permanent part of your budget.

Escrow

There are many different closing costs for the buyer. It would be to your advantage to familiarize yourself with the different costs.

Escrow is part of the closing costs and usually is 1%-2% of the purchase price. Most of the time these fees are split between the buyer and seller, but that is not always the case. This is usually negotiated during the offer phase. Sometimes the seller or the buyer is asked to pick-up the cost.

Homeowners Insurance

Just like with your car insurance, you are required to have homeowner’s insurance when you take out a loan. Take some time and shop around for what they cover and the reliability of the company.

There are many many different fees when buying a house. The best thing is to educate yourself beforehand so you will understand the process better. Also, many things are negotiable and the price of different things will depend on the institution you work with.

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