Have you ever tried to calculate the TOTAL cost of purchasing a home? Not all of the cost is included in the listing price.
Some costs are typically easy to estimate, like homeowner’s insurance, based on home value. You’ll also need to factor in closing costs, including appraisal and lender fees. But other costs are not as easy to anticipate.
Face the unexpected and unknowns of home buying with research and planning. Here are some things to consider when planning for the hidden costs of buying a home:
Review the Inspection
Unless you negotiate it as part of your home purchase agreement, you’ll likely be on the hook for any immediate upgrades the home needs. That’s why many real estate experts recommend hiring a home inspector.
Your REALTOR® can help you find a qualified home inspector. This initial cost upfront can help you understand the risks and needs of the home before you decide to purchase it. Review the results from the home inspection for immediate needs, like bad electrical wiring, weak foundations, or wood rot, and plan for these costs.
Keep in mind that if your inspector finds a problem and you decide not to move forward with the home sale, you’ll still be out the cost of the inspector. This cost, however, may save you a lot in the long run.
Understand your Home Insurance Policy
Home insurance, often required by lenders, can be a good way to protect you from unexpected costs. But not all home insurance policies are created equal.
As you are considering home insurance policies, make sure you understand the costs and coverage of your policy.
Even with home insurance, some problems may not be covered and can lead to unexpected costs. It’s important to understand the ins and outs of your policy.
Plan for Monthly Bills
Don’t underestimate the cost of your own comfort. Is your house wired for cable and internet? Have you calculated the costs of your new utility bills? Utility bills can vary a lot between properties. It costs more to heat and cool a larger home.
If you’re moving from a rental, utilities may have been shared and reduced the monthly cost. Utility costs also depend on property size (it costs more to heat and cool a larger home) and energy efficient appliances.
While many home buyers search for a move-in ready home, that doesn’t necessarily mean it’ll check off every item on your wish list. When home shopping, consider the cost of any improvements you’d want to make on homes in your budget.
Research the upgrades you might want to make and add them to your total cost. This way, you won’t be caught off-guard when replacing the living room floor or re-tiling the bathroom pushes you over budget. Prioritize the changes that need to be made right away over those that can wait a year or two.
Talk to your real estate agent about the items on your wish list — which items are negotiable and which you can’t live without — and set up custom searches to find the home that fits you.
The kind of home you can afford is often determined by your down payment, monthly payments, and interest rate. However, it’s not always a simple calculation.
Consider the size of your down payment. By choosing to make a smaller down payment, you can set aside some money for house projects and costs you expect right away. Having additional money in savings also gives you a rainy day fund. That way, you’ll be prepared when unexpected costs arise.
Visit the REcolorado Mortgage Resource Center to calculate your home affordability and mortgage costs.
Knowledge is power. By understanding the true cost of a home, you can make smarter home buying decisions. By considering all of the factors above, you’ll be more prepared to walk away from a home for sale on the high end of your budget but comes with additional costs that make it unaffordable.
Your real estate agent is your expert source during the home search and home buying process. They can help you identify the hidden costs of buying a home and weigh them as you search for your Colorado home. If you aren’t already working with a REALTOR, connect with one on REcolorado.com. While you’re there, search homes for sale to find the most accurate and up-to-date home listings in Colorado.
Originally published January 20, 2017 — Updated January 31, 2019.