20 surprise costs first-time homebuyers must budget for

Hidden homeowner fees to watch out for

Buying a home? Congratulations – there’s nothing quite like the satisfaction of owning your own place! But amidst all the paint and Pinterest-related excitement, remember to pay attention to your wallet, too.

Whether it's your first house or dream home, purchasing a property involves a myriad of fees, both small and large, so it's important to budget accordingly to avoid any nasty surprises down the line.

Read on as we break down the essential costs you need to budget for when investing in your first home...

Down payments

When it comes to buying a house, the down payment amount will differ depending on where you choose to buy and the size of the property. In the US, the minimum down payment can be as little as 3%, but you must have a credit score of at least 580, according to comparison site Bankrate.com.

If you're able to put down a larger deposit, even better, as you'll be able to get a lower interest rate. Plus, with down payments that are less than 20%, you'll have to pay mortgage insurance. Also called PMI, many lenders require this type of insurance to offset their risk.

Hiring a real estate attorney

To guide you through the legalities of purchasing a property, you should consider hiring a real estate attorney. While most states don't require it, a legal professional will ensure all paperwork is drawn up correctly and filed with the proper authorities.

They can negotiate on your behalf if you face a problem during the buying process and they will liaise with your sellers’ lawyer to complete the sale. According to Lawful.com, fees will vary from firm to firm, but you could be looking at between $150 and $500 per hour for an experienced attorney. Alternatively, they may charge a flat fee of up to $2,000.

Broker services

When it comes to securing funds for a new home, many buyers opt to use a mortgage broker, as they’re able to scour the whole marketplace for the best deals and generally simplify the process. 

If you choose to work with a mortgage broker, you’ll have to pay between 1% and 2% of the approved loan amount, so make sure you factor in this cost.

Underwriting and processing fees

Sometimes called mortgage origination fees, underwriting and processing fees vary from lender to lender, but are essentially admin charges.

It covers the costs of drafting, processing and closing your mortgage loan and can cost anywhere between $400 and $900, depending on the lender and loan type.

Closing mortgage costs

You might think you're in the clear once your mortgage has been approved, but many unexpected costs can crop up during the closing process.

For example, real estate agent's commission, title and escrow fees, so it's advisable to set aside at least 2% of your home’s purchase price to cover any unexpected extras.

Appraisal fees

A home appraisal is a professional independent assessment that determines the fair market value of a property. The independent appraisers will analyze several factors, including its age, condition and structural construction, to ensure you're not paying over the odds for a house that isn't worth the asking price.

The amount varies considerably depending on the lender and the purchase price, but Bankrate.com suggests a typical cost is around $500 for the average single-family home.

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Transfer tax

Sadly, we pay tax on almost everything we buy and this includes homes. Real estate transfer tax – also known as deed tax, mortgage registry tax or stamp tax – applies in most states and covers the government charges associated with documenting a change in ownership.

Depending on the location of the home, the transfer tax can be paid either by the buyer or seller. Ultimately, the decision can be influenced by local custom as well as the real estate market. Look for an online transfer tax calculator for your state or local authority to find out if you need to pay and how the cost is calculated.

Property tax

In the US, you not only need to pay your mortgage every month but also additional property taxes. Some lenders will simply add this to your monthly mortgage payment while in some states, it's paid either in advance or retrospectively for the full year. It’s important to ensure you know exactly how much the tax will equate to in advance of signing any paperwork.

Property taxes vary greatly depending on where you live and is usually based on the value of the home and any land you own. Rocket Mortgage has a fantastic tool that shows how much tax each state charges.

Wire transfer fees

Electronic transfer fees can sometimes be charged to cover the cost of your bank sending the agreed funds to your attorney or broker. The price varies depending on the companies you're working with and where you're sending the money.

Bankrate.com suggests domestic outgoing wire transfer fees average about $26 and outgoing international wire fees average at $44.

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Impact fees

If you're buying a brand new home, or one that has been built in the last few years, you may be required to pay for impact fees. Essentially, these are charged by the local government to the property developer, but many have opted to pass the fees onto the buyers.

The charge could be used for the construction of new roads, utility services, public green spaces or even schools. So, ask your realtor the question in advance.

HOA fees

HOA (homeowners association) dues are paid by homeowners who make use of communal facilities, such as a swimming pool, garden or fitness centre – most often in condos. The fee covers the repair or upkeep of these shared spaces, including everything from pest control to snow removal and gardening.

Generally paid monthly, the average fee for HOA dues is $250, but they can cost upward of $1,000, according to HomeLight. You may also be charged a one-time HOA transfer fee for administrative costs related to your purchase.

Homeowners insurance

While homeowners insurance isn't a legal requirement in the US, it's well worth having. If the worst happens, you’ll be financially covered. Mortgage lenders, on the other hand, do often require it and see it as a safety net, especially for homes considered high-risk, such as those in flood zones.

On average, you can expect to pay $1,541 in home insurance premiums for a home worth between $400,000 and $500,000, according to American news site usnews.com. However, your coverages, deductible and ZIP code will also affect how much you pay.

Moving costs

Don't forget to factor in the cost of moving your belongings. You could hire a truck and do it yourself, or you could pay a team of professional movers. Truck hire will be cheaper, but if you’ve got a lot of stuff it can be pretty exhausting work.

A professional moving company will charge depending on the number of items you’re moving and the relocation area. According to HomeLight, a short-distance move costs $1,638 on average, while a cross-country trip could be as high as $3,250.

Mail redirection

Even if you’ve notified all relevant parties of your change of address, it’s worth setting up a mail redirection service for the first few months for peace of mind. The U.S. Postal Service (USPS) can forward your mail to a new address, or hold it at your local post office for a limited time.

It costs just $1.10 to set up the redirect, using the 'Who is moving?' section of the official USPS.com website.

Utilities

If you’re moving to a larger home, or historically have always split household costs with a roommate, you might be in for a shock when you receive the first utility bill through the door.

Annual utility costs can vary significantly, depending on the location of your home, its age and size, as well as the type of heating system you have. Remember, it costs more to cool and heat a larger space, so your energy bills will inevitably go up.

Additional moving costs

Make sure you budget for any additional services you’ll need on the day of your move. Depending on your circumstances, this could be anything from childcare to pet sitting, or even storage units.

If you're moving out of a rental property, you may even be required to pay an early termination fee, which typically works out at between two to four months' rent. These costs can soon add up, so ensure you keep a contingency budget to one side, just in case.

Maintenance and repairs

If you've done your due diligence, you’ll know of any repairs that need attention. Likewise, if there are any cosmetic changes you want to make, it's worth budgeting for them so you can get started right away.

Roll up your sleeves and attempt some DIY or hire a professional to help. According to professional hiring site Homeguide, a handyman can charge between $50 and $80 per hour, so budget accordingly.

New furnishings

And finally, the fun bit – decking out your new place! If this is your first home, there's a good chance you’ll need to factor in a few big purchases like a couch and refrigerator.

If you're on a budget, local neighborhood recycling sites and apps can provide you with budget furnishings to tide you over. While some things can wait, there are a few essentials you’ll require straight away – including a bed!

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