By Luke Mullins
Posted: April 8, 2010
Slide Show: 12 Hidden Costs of Homeownership
As the spring season gets underway, many Americans will be looking to take advantage of the lower real estate prices, attractive mortgage rates, and federal tax credit by purchasing a home. But remember: Not all of the costs associated with homeownership are reflected in the listed price. Indeed, many buyers—particularly first-time buyers—may be surprised by the amount of cash they'll need to set aside for housing-related expenses that they hadn't previously considered. These often-overlooked expenses can include everything from title insurance to lawn mowing. To give would-be home buyers a better sense of the budget they'll need to buy and maintain a home, U.S. News spoke with a handful of real estate experts and compiled a list of 12 hidden costs of homeownership:
[Slide Show: 12 Hidden Costs of Homeownership.]
1. Home inspection. Since a home purchase is likely to be the largest financial investment of your life, it's a good idea to have it professionally inspected beforehand. A home inspector can point out areas of the property that may need repairs. Buyers can use this information as leverage during home-price negotiations or simply to determine whether or not the property is worth purchasing. "It's not required, but certainly I recommend it to buyers," says Judy Moore of Re/Max Landmark Realtors in Lexington, Mass. "It is actually very helpful in that [buyers] learn about the property and how to maintain it and it also alerts them to any potential issues that may be coming up in the near future or need to be taken care of." The cost of a home inspection, which can run several hundred dollars or more, is typically incurred by the buyers before they go to closing, Moore says.
2. Pest inspection. Buyers should consider obtaining a separate inspection for wood-destroying insects, such as termites. Although no laws mandate pre-transaction pest inspections and not all lenders require them, Greg Baumann, senior scientist for the National Pest Management Association, says buyers would be smart to have the procedure done prior to closing. "If you buy a house and you don't have an inspection and the house is riddled [with termites], you go to closing and now the house is yours," Baumann says. "It happens at a time in their lives when [homeowners] can least afford repairs." Termite inspections typically cost between $50 and $200, Baumann says.
3. Appraisal fees. Before you can purchase a home, your lender will require you to have the property valued by a professional real estate appraiser. Lenders use such appraisals when determining the amount of money to offer mortgage borrowers. In years past, appraisal costs were often rolled into the fees that borrowers paid at closing, says Tom Vanderwell, a mortgage officer for Fifth Third Bank in Michigan. Today, however, he makes sure to collect this fee up front. "We've got to pay the appraiser whether the deal goes through or not," he says. "And with the way that the market has been, there is certainly a substantial percentage of deals that are not going through." After buyers pay the fee—which typically ranges between $350 and $400—it appears as a credit on their closing statement, Vanderwell says.
4. Closing costs. When you arrive to sign your closing documents, be prepared to pay thousands of dollars in assorted fees. Such expenses—known as closing costs—can include processing fees, underwriting fees, recording fees, survey fees, and title insurance fees. "This industry has done a bad job of explaining to people that there are legitimate fees which must be paid in order to grant you a mortgage loan," says Keith Gumbinger, of HSH.com. "There are various service providers who are involved in this process—they have their costs and [lenders] have some of [their] own administrative costs as well." But savvy consumers can limit these expenses. Gumbinger recommends that would-be buyers ask several different lenders for so-called good faith estimates, which outline closing costs in detail. (Lenders, however, are under no obligation to offer you such information before you apply, he says.) "If lender A charges a document preparation fee and lender B doesn't, that might be one of the considerations," Gumbinger says. Closing costs vary, but they usually range between 2 to 3 percent of the mortgage loan amount, he says.
5. Moving expenses. Buyers face an additional wave of costs once their home purchase is complete. Take moving expenses. Unless your new house is around the corner or you have a large group of helpful friends, you'll likely need some professional help to transport your belongings. Such expenses can reach several thousand dollars or more, depending on the distance of the move. "Moving is a significant expense—particularly across the country," says Gail Cunningham of the National Foundation for Credit Counseling. For those moving on account of a job, Cunningham recommends asking your new employer to chip in for some of the costs associated with the transition. "I know that people are probably so excited to get the job that they don't want to rock the boat, but that's a pretty normal question," Cunningham says. "A lot of these companies have standing contracts so it is certainly a question worth posing because you don't want to have to cough up that out-of-pocket expense unnecessarily."
You need to go out and buy a home and live in it for a few years before you try to inform this readership of hidden costs of home ownership.
I owned a condo for 22 years and recently moved into a 55+ apartment complex in which all utilities are included in the (very low) rent. I love it. I've had it up to here with owning. Condo fees, condo assessments (something the writer doesn't mention), property taxes, homeowner's insurance, repairs, and all the other costs he does mention are a pain in the butt. I downsized to a one-bedroom apartment and am very happy and saving a boatload of money every month. Plus, if something goes wrong, maintenance is here in minutes and takes care of it at no charge. One maintenance guy didn't like the the toilet handle had to be held down for 2 seconds before the toilet flushed (he said it should be instantaneous) so he changed the innards of the toilet. He didn't like the stove splash guards (they were a little worn) so he changed them on the spot. This is a very pleasant change from writing checks to plumbers, electricians, repairmen, etc.
And technically, the costs described in this article aren't really "hidden." They're right there in black and white, on paper, for every category he cites.
Just goes to show, what a journalist thinks is a good story, enlightens the rest to how little else the journalists know about practical matters, history, finance, politics, war, raising children, health care, religion, sports and the human condition. Did I miss anything?
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A weekly insider's guide to politics and policy — in a multimedia, digital format. 52 issues for $19.95!
6 months of U.S. News & World Report's print edition for only $15. Save up to 67% off the cover price!
Use the U.S. News Mutual Fund Score and the rankings of trusted fund analysts to pick an investment that's right for you.
Dartmouth, Williams, and some other wealthy schools will ask for more from students and parents. Here's how you can handle the big change.
Cars that make the most economic sense — not just when you sign on the dotted line, but for years after.
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