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Buying a home can be a dream come true, but it can also be quite expensive. The true cost of buying a home goes far beyond the down payment and mortgage costs—not just due to expenses such as taxes and insurance, but because of unexpected costs that may arise later.
If your home isn't inspected carefully, obvious flaws might be overlooked that must be fixed before you can move in. Or if these flaws aren't spotted early and planned for, they could add a strain on your budget later. Here are a few ways to avoid costly surprise expenses.
Hire a Top-Notch Inspector
While some property issues are easy to spot, homes can hide decades of issues within their walls. There are some things you can seek out for yourself, like cracks and water damage, but it's also critical to hire a trustworthy inspector.
Some mortgage lenders require a third-party home inspection, while others don't. Either way, a third-party home inspection is a good idea to spot problems. Costs are typically covered by the buyer, and could range from $300 to $900 or more depending on the vendor and level of service performed. This upfront cost helps find potentially dangerous or costly problems you can ask the seller to repair or provide a credit for. If the inspection unearths major issues, it could provide you with an opportunity to back out of the sale entirely.
Here are a few tips for a successful inspection:
- Don't rely on referrals from your real estate agent. You can find someone on your own through recommendations from friends and family or go online and read reviews from other homebuyers. Your real estate agent may also refer you to their inspectors of choice, but this could potentially present a conflict of interest if it means the inspector is less likely to point out issues that would tank the sale. If you feel you can trust that your real estate agent and their recommended inspector are acting in your best interest, however, this may not be a concern.
- Consider a specialist. Some inspectors have more experience with certain types of properties and problems, so it's wise to hire someone who's savvy with properties like yours. If you're worried about structural issues, for example, you might hire an engineer or architect who also does home inspections.
- Look for credentials. Hire someone who is certified, which means they've been professionally trained. Also make sure they are insured and bonded—if there's a mistake or disagreement, their insurance can potentially cover the costs to settle it.
- Be there during the inspection. While an inspection can take several hours, it's advisable to be there to observe, ask questions and ensure that the inspector is thorough. The inspector can also offer you advice and maintenance tips.
- Carefully review the report. Make sure you receive and review a copy of the inspection report. Not everything noted will necessarily need fixing, but you might be able to use the report to negotiate repairs or reduce costs with the seller. It can also give you a sense of any potential repairs and maintenance you'll need to budget for in the future. For example, the inspector might indicate that while the roof is still in good shape, it will likely need replacing in the next few years.
Understand What's Covered in Home Inspections
Not every inspector looks at every element of the house. What's examined can vary by who is inspecting it and the complexity of the home being inspected.
At a minimum, a professional inspector will typically look at central heating and cooling systems, plumbing, electrical systems, walls, visible insulation and the roof. They may also look for pest or mold problems.
Home inspectors might not look for landscaping issues, septic tank problems, warped floors or permanent pet or cigarette odors. They might not also look deeply into the home's structure. If you suspect foundation or structural issues, it may be a good idea to hire someone with expertise to make sure no serious and expensive problems are overlooked.
It's critical to ask an inspector ahead of time what they do and don't cover. For example, find out if they examine windows and floors, and if they test outlets and appliances. Once you get a list of what's not covered by the inspection, examine those items yourself or consider hiring another expert to take a look.
Additionally, while inspectors will likely look for obvious signs of water damage or visible mold, they may not look deeper for mold out of sight. If you're in an area where mold may be an issue, your inspector may perform a mold test for an extra fee.
Other Costs to Prepare For
Buying a home requires far more than just a down payment. To avoid surprises at closing, make sure you've also budgeted for closing costs, which can range from 2% to 5% of the home's purchase price. Some sellers are willing to negotiate and cover some closing costs, though don't count on this.
Closing costs can include:
- Home appraisal fees: Lenders usually require an appraiser to determine the home's fair market value.
- Loan origination fees or processing fees: These fees may be charged by the lender as part of the cost of issuing your mortgage loan and typically range from 0.5% to 1.5% of the loan amount.
- Earnest money: An earnest money deposit, or good faith deposit, is a payment you put down to show you're serious about buying the home. The amount you pay will later be applied to your down payment or closing costs. You'll typically be asked to wire this deposit once you enter escrow.
- Homeowners insurance: Your yearly homeowners insurance premium may be included in closing costs.
- Title insurance: It's common for homebuyers to pay for both the lender's and your own title insurance policies. These policies protect both parties from potential costs that could arise if any claims on the property are discovered in the title search.
Some of these, like the appraisal and earnest money deposit, are one-time expenses. But make sure you're prepared to budget for the ongoing costs such as taxes, insurance and HOA fees. You may also want to budget for smaller expenses once you move in, such as new landscaping, painting, new cabinet fixtures, rugs or furniture.