Beware of Additional Costs When Buying a Home
It’s always a good idea to plan on additional costs when buying a home. There always at least one surprise cost and it sends the buyer scrambling to come up with unexpected last minute cash! It doesn’t matter if the home is in Santa Clarita, or anywhere else, buying a home can be full of surprises. Some costs might be geographic specific, so it’s always a good idea to verify before making a decision to move forward with a home purchase. While we can’t cover all possibilities for additional costs in this post, we do provide the most common. Contact us directly with any questions.
Most Common Added Costs
Obtaining a home inspection is no surprise and most real estate professionals recommend this to their buyers. The cost of the inspection varies depending on the location and size of the home and a few other factors.
Prorated Property Tax (Common Gotcha)
Taxes are usually pro-rated during escrow and often result in an added out of pocket expense for the buyer. Here’s an example of how it works in California. If the seller has already paid the property taxes for the next six months and the buyer takes occupancy at month two, the buyer must reimburse the seller for those four months already paid. The arrangements are made by the escrow company, but for the buyer, it’s often a surprise and another unexpected expense.
Special Bond Assessments
Verify with your realtor if the property you are purchasing comes with special bond assessments, a Mello Roos tax and/or Homeowner’s Association (HOA) Fees. These costs can be quite hefty and must be tacked on to the total monthly payment equation. If your agent isn’t warning to you of these potential additional costs, you may want to consider finding another that is also an Accredited Buyer’s Representative.
When calculating the cost of buying a new home there are almost always some surprises and many people forget to include some of the miscellaneous fees, taxes and insurance costs associated with owning property. All of these additional costs can deﬁnitely add up, and put what you thought was an aﬀordable home out of your ﬁnancial reach on closing day.
13 Additional Costs to Watch For When Buying a Home
Here’s a list of 13 additional costs you may incur when you buy a new home. Budgeting in advance will help you turn what might be a ﬁnancial nightmare into a smooth transition as you move into your dream home.
- Appraisal Fees: The lending institution handling your mortgage may require an appraisal on the property before they proceed with the loan. The buyer is responsible for this cost, which may run up to around $500.
- Property Taxes: Your lending institution may opt to include the cost of your property taxes into your mortgage payment, depending upon the size of your down payment or other factors. If they choose not to do that, you will be responsible for the annual or bi-annual payments yourself, and you may need to provide annual proof to your lending institution that these taxes have been paid. Often buyers are surprised at the pro rated amounts they are responsible. Example: If seller has already paid through the end of the tax year and you buy the home three months prior to the end of the tax year, you must reimburse the seller for the three months already paid in advance!
- Property Survey: Your lending institution may require an updated property survey if you are not the ﬁrst owner or original owner of the property. Surveys can be moderately expensive, ranging from $700 to $1000 .
- Property Insurance: Your lender will require proof that you are carrying a homeowners insurance policy on your new house that will adequately cover the replacement value of your home, which is diﬀerent from the purchasing price. Also, be sure to ask your Realtor about any possible Mello Roos Taxes!
- Service Charges: Most utilities, such as water, power and cable, may require additional deposits or installation fees for a change of service.
- Legal Fees: You may elect to have a lawyer review all the paperwork for the purchase of a home before closing. Rates can vary greatly according to the expertise of the lawyer, and the size and complexity of the real estate transaction.
- Mortgage Broker Fees: Mortgage brokers can charge you a fee to secure your ﬁnancing with an appropriate lending institution, although many will try to get the lending institution to share or absorb these fees.
- Mortgage Loan Insurance Fees: This type of insurance, which can cost from 0.5 to 3.5% of the total mortgage, can usually be worked into the monthly mortgage and property tax payments. You may be able to avoid this type of insurance if you have enough of a down payment.
- Moving Costs: The cost for movers is no surprise but the amount is! Professional movers can be extremely expensive for a van and three movers. These prices can rise significantly during peak seasons. Also, even if moving yourself, there are still costs involved, so be prepared.
- Homeowner’s Association Fees: Condominiums, townhouses, and single family homes in planned communities usually charge a monthly homeowners association fee for the maintenance of common grounds, recreational areas, and other amenities. In some neighborhoods, it’s surprising how expensive these monthly HOA fees can be!
- Water Quality Certiﬁcation: If the water supply for your new home is provided by a well, then you should have the quality checked by a local expert. These fees may or may not be the responsibility of the new owner, depending upon where you live.
- Local Improvements: Property taxes can be aﬀected dramatically if large municipal improvements, such as the addition of sidewalks, water treatment centers or sewage systems, have been made recently.
- Land Transfer Taxes: These taxes are generally assessed whenever a piece of property changes hands. The amount can vary greatly, especially if the value of the land has increased substantially since the last change of ownership.