These Are the Hidden Costs of Buying a House

The housing market looks like hell for the foreseeable future. Your home is probably the most expensive thing you’ll ever own, and that expense goes beyond the closing price. For most of us, it’ll be the largest purchase we’ll ever make, and the biggest debt we’ll ever take on—and that’s before all the hidden, unexpected costs you can’t see right away.

There’s the cost of the house, but then there are other ongoing and upfront expenses that can catch you off guard. Some of these costs aren’t exactly “hidden” but they are commonly overlooked. Especially if you’re a first-time buyer, it helps to know what you’re getting into. Let’s take a look at them in detail.

Home inspections

You put an offer on a home, and it got accepted. Hooray! From here, inspections will be your first major expense. Yes, there may be more than one inspection.

Before you officially close on your house, you’ll want to schedule a thorough inspection. In fact, your lender will probably even require one. At a minimum, you want to order a general inspection of the house and an inspection for wood-destroying insects (also known as termites), if that’s not included in the general. A general inspection will run you a few hundred bucks, and a termite will probably be around a hundred. Depending on the age and condition of the house, you may also want to schedule a sewer inspection, which can be another couple hundred dollars.

All of these can add up to over a thousand dollars, but that’s a small price to pay to make sure you’re not getting a lemon. If the house requires a hefty amount of maintenance, you might renegotiate with the seller, pull out of the deal completely, or simply budget for the added expense.

In some states, if a previous buyer backed out but they conducted a home inspection, the seller is required to disclose that inspection. In this case, if your mortgage lender doesn’t require you to conduct your own, there’s nothing stopping you from skipping the inspection altogether. You already have a report, after all. However, it’s always a good idea to get your own inspection anyway. It’s a big purchase, so it’s better to err on the side of caution. Plus, you want to be around during the inspection to see things for yourself.

In some cases, lenders require survey costs, too. That can be another few hundred bucks, but you’ll get a professional survey of your property so you know exactly where your boundaries are.

Closing costs

After your offer is accepted, your lender will crunch some numbers and run the paperwork. At this point, they should give you a detailed list of what your closing costs are. The general consensus is that losing costs will run you an extra 2% to 5% of the home purchase price. So if you’re buying a $200,000 home, expect to spend between $4,000 and $10,000. Here’s what these costs usually include:

You can always plug some numbers into a closing cost calculator to get a bit more specific idea of what you’ll pay, but in general, expect to spend several thousand dollars on top of your down payment when you close on your home.

Budget for ongoing taxes and insurance

Monthly mortgage calculators tell you what your mortgage payment, including interest, will be each month. Of course, your taxes will vary depending on the value of your home and where you live, but WalletHub reports that the average U.S. homeowner pays about $2,690 in property taxes year.

We explain what the current 7% mortgage rate means for your monthly payments here. You can find out how much the current rate will impact your monthly payments with an online mortgage calculator.

Depending on the terms of your loan, you might pay this monthly into an escrow account (also known as an impound account). In this case, you make these payments to your lender, and they’ll pay your taxes and insurance on your behalf. If you don’t have an escrow account, you’ll just pay them on your own directly when they’re due.

However and whatever you pay, make sure to budget for this ongoing, recurring cost. There’s good news, though: you can deduct your property tax and mortgage interest from your taxable income, so you’ll pay a less in taxes every year.

Keep funds on hand for maintenance and repair

When your air conditioning craps out as a renter, it’s a pain, but all you have to do is call your landlord and hope for the best. As a homeowner, it hurts a little more because you have to pay for for the repair yourself.

Most people know owning your own home means forking over the cash for your own maintenance, but you might underestimate how much these projects will run you. Jammed disposals, leaky faucets, and cracked exterior paint are just a few repair projects that catch most first-time homeowners off guard.

Every home is different, so there’s no one-size-fits-all answer for determining how much you’re going to pay on maintenance every year. You’re usually advised to assume that maintenance costs on your house will be about 1–4 percent of its value annually, or somewhere around $150–$500 (or more) per month depending on where you live and the kind of house you have. For a $200,000 home, four percent is $8,000. It seems like a lot, but even if you don’t spend that money, consider it an emergency fund for your home.

Prepare for higher utility bills

Let’s say you moved out of your cramped apartment and into a nice, three-bedroom home. Elbow room is great, but it also means your bills will be a little higher.

Depending on what you’re used to paying, your gas, electric, and water bills won’t necessarily be higher when you buy a home, but they often are. Plus, your landlord might foot the bill for some expenses (like trash pickup or water) that you’ll have to pay when you own. To get an idea of what your own situation will look like, consider asking the seller if you can take a look at their past bills. It might be a long shot, but it’s probably the easiest way to see how much you’ll pay.

The bottom line

Buying a home is traditionally thought to be a smarter financial decision than renting. The argument is that, when you rent, you’re throwing money away, but when you buy, you own your home at the end of the day. Sure, if you compare rental price to the bare bones price of your mortgage, that may be true. However, all of these extra costs add up. And, like your rent, those expenses don’t exactly buy you anything: they’re just the price you pay for owning.

Still, even with these costs, buying is a better long-term financial decision than renting in many areas. You want to crunch the numbers yourself, considering all of these unexpected costs. (The New York Times rent vs. buy calculator is probably the best tool we’ve seen for crunching these numbers.)

At any rate, once you make your decision to buy a home, be prepared for the price you’ll really pay. Factor in these expenses, and you should be on track. And make sure you’re avoiding these common money mistakes when buying a home.