Hidden Buyer Expenses

Hidden Buyer Expenses

There are several hidden buyer expenses when purchasing real estate. Although many people who have purchased homes before understand the additional costs, it can catch first-time homebuyers by surprise. Here are at least five hidden buyer expenses that you need to know about before making your purchase.

Homeowner Insurance: Homeowner’s insurance is a must if you take out a mortgage to buy a home. You will need to pay a full year upfront for the insurance or you can be billed per month. Keep in mind that homeowner’s insurance on investment property is considerably higher than your primary residence.

Tax Escrows: This is arguably the biggest of all hidden expenses when it comes to purchasing a home. It’s not really a closing cost, but it does cost thousands of dollars on average every year. When you purchase a home, the lender will establish an escrow account designed to pay the taxes. Instead of you paying the property taxes twice a year, the lender will pay the taxes for you. This requires at least six months of coverage in the escrow account just in case the tax bill is higher than expected. Getting a refund because the escrow is in overflow is rare since property taxes typically go up over time.

Transfer Tax / Transfer Stamps: In addition to the annual property taxes, there is a transfer tax that must be paid as well if you are a home buyer in the city of Chicago.  This is a little known hidden expense because typically the seller pays for all transfer taxes in most areas.  But in Chicago, the buyer must pay $3.75 per $500 as a transfer tax to the city. So if you buy a home for $200,000 in the city of Chicago, the buyer will pay $1500 to the city.  Different cities will also charge buyers for transfer stamps and inspections so check local ordinances before buying a home.

Origination Points: Because of full disclosure laws put in place in 2009, people are now aware of origination fees that are part of the mortgage payments.  Origination fees or points can help you buy down your interest rate (lower your interest rate). If you go after the lowest interest rate possible, you may have to pay several origination points which means you have to bring more money to the closing.

Miscellaneous Fees and Payments: In addition to the fees mentioned earlier, there are a myriad of other smaller expenses that can add up when buying a new home. There are home inspection fees, radon test fees, termite test fees, and appraisal fees that can add up into the hundreds of dollars. There are also fees to ensure you get a clean title, attorney costs, title search and insurance, recording, and lender fees that are not associated with origination fees that can add up to the thousands of dollars all together.

The good news is that you will receive a worksheet that covers the fees owed before the loan is submitted so you will know what you have to pay. But remember, there may still be fees or payment requirements that are not obvious. So do the research and make sure to account for all the hidden buyer expenses before making the commitment to purchase a home.