How Much Do You Really Need to Buy a House? (The Hidden Costs Revealed)

While buying a house, the true cost of the house goes far beyond the listing price. The major reason behind it is the hidden costs, such as fees, taxes, and required services, which cost you tens of thousands of dollars. You may be caught off guard and risk overspending if they don’t plan for these expenses.

Buying your first home can be a major milestone in your financial journey, but it also comes with long-term financial responsibilities. Knowing what aspects of your finances you need to bolster as you think about buying a home for the first time can help you qualify for your mortgage and pay it off successfully.

In this blog post, I will discuss the hidden costs of buying a house, government fees, closing costs, moving expenses, and many more. By the end, you will be clear how much you really need to buy a house.

The Down Payment Isn’t the Only Big Upfront Cost

The majority of individuals are aware that they require a down payment. But they are unaware of how much money they will require at the time they close. Down payment is not the only aspect. The initial costs faced by homebuyers will be in the upfront expenses other than the mortgage down payment.

Closing costs range between 3 and 6 percent of the loan amount and may entail tens of thousands of dollars in charges. This includes loan origination charges, property appraisal, title insurance charges, and legal services.

In addition to this, buyers must provide an earnest money deposit, which is usually 1 – 3 percent of the sale price. This is required to maintain an offer, and lenders will demand that several months of property taxes and homeowners’ insurance be paid. There are other miscellaneous transactional costs, such as home inspection costs, which vary widely.

Closing Costs: The Biggest Hidden Expense

The closing cost is a major deterrent to people wishing to buy real estate, such as houses. It usually costs the purchaser 2 to 6 percent of the purchase price. These are different administrative fees to transfer the property legally and get the money to finance it.

Median-priced American houses cost around $410,800, and you need $40,000-$60,000 liquid funds for closing costs. You have to keep in mind that it is one of the most important factors to focus on in terms of failing to budget. Here are the necessary costs in the transmission of the transaction, and the closing costs often include:

• Loan Origination Fees
• Title Insurance and Search
• Appraisal and Inspection Fees
• Government Recording Fees
• Prepaid Escrow Items

When buying a house, the money is allocated by using professionals other than the seller. The seller gets the purchase price of the home, but at the same time, your mortgage lender maintains a fee on loan origination.

Title companies and other settlement agents are paid to skip the government laws on transferring ownership. And the government municipalities demand payment to record the deed. The following recipients can be tracked with the help of the CFPB Closing Disclosure Guide:

• Seller: The Seller is given the final price for selling the home.
• Mortgage Lender: Charges processing and origination fees.
• Title/Escrow Companies: Assist in insurance and legal search.
• Government Agencies: Transfer taxes and recording fees.
• Third-Party Inspectors: Paid to inspect the condition of the house.

Also, you will need to pay other service providers. This includes appraisers who assess the value of the house. Homeowners and insurance on a private mortgage are also paid to insurance companies.

The economic investment of the home purchase is much broader nowadays, and is not just the mortgage. Inflation in the cost of labor and materials has increased the average of the hidden recurring costs by more than $21,000 yearly.

Homeowners have to pay taxes and homeowners’ insurance, which often increases. The financially responsible aspect is that you will do all of the repairs. This includes the minor leakages in the plumbing systems and the complete breakdown of the HVAC systems.

The Fannie Mae Homebuyer Education estimation is a tool that can help prepare your finances to estimate such long-term obligations.

• Maintenance and Repairs: Annual expenditure on both regular maintenance and maintenance repairs.
• Property Taxes: These are local taxes that usually increase with the increase in the value of homes.
• Homeowners Insurance: It is compulsory insurance, which covers calamities and responsibilities.
• HOA Fees: fees per month or yearly for the community service and amenities.
• Rising Utility Fees: Rising water, electricity, gas, and trash disposal fees.

Purchasing a house does not require a money deposit. You require between $47,000 and $55,000 in liquid assets to finance all the initial expenses to purchase a median-priced $410,800 home, as mentioned in Amerisave.

This comes in the form of your down payment, which is 3-20% on the type of loan taken and closing costs, 2-5% of the loan amount.  This also includes earnest money deposits, prepaid property taxes and insurance, and moving expenses.

In addition to the initial cash deposit, anticipate payment of about $3,150 monthly on a home valued at $400,000 with a 5% down payment that requires about $135,000 annual income.

Most importantly, you need to have 3-6 months‘ reserves upon closing to keep you afloat financially. Less established customers have the benefit of cheaper down payments, such as FHA loans 3.5% down or VA/USDA loans.

Proactive planning is very important to saving money and avoiding hidden costs when purchasing and holding a home. 

These activities could easily alleviate the financial pressure, whether it is shopping around in search of services or setting terms and spending on long-term costs. Here are six actionable tips:

• Shop around for financial services: Compare loan offers of several lenders, and shop around for the best prices on homeowners’ insurance and third-party services such as title companies.
• Negotiate seller concessions: Ask the seller to cover some or all of your closing costs, a common tactic in a buyer’s market.
• Prioritize a 20% down payment: This eliminates the need for expensive Private Mortgage Insurance (PMI), saving you thousands of dollars annually.
• Improve energy efficiency: Invest in smart home technology, close drafts, and replace old appliances with new, efficient ones to save on the current utility bills.

Buying a house requires more than just saving for a down payment. You have prioritized all of the closing costs and property taxes to ongoing maintenance and insurance, and hidden costs can add up quickly. As you plan your homeownership journey, keep track of every expense to avoid financial surprises.

By being proactive and budgeting for all fees, you’ll be better prepared to purchase your dream home with confidence. Remember, smart planning today protects your investment and your peace of mind tomorrow. Your financial future as a homeowner starts with understanding and managing these real estate expenses.