8 Hidden Costs That Homebuyers Should Know

Home inspection costs

Before you close on a house, the lender may require a home inspection, which can range from $200 - $600. However, even if an inspection is not required, it is worth paying a professional to evaluate the house so you can avoid spending money on hidden home repairs.

Taxes

Property taxes are prepaid at closing. You have the option of paying them through escrow or paying them on your own (waive). Usually paid bi-annually or annually and can as high as 4.2% of the sale price.

Homeowner’s insurance
At closing, you will be required to pay homeowner’s insurance because it covers any damage to the home, in addition to your personal property. Depending upon where you live, you may also need to purchase supplemental insurance for hurricanes, floors, tornados, earthquakes, and other natural disasters that are not covered under your standard policy. In addition, if you own any valuable items, such as jewelry, you can add additional coverage. The premium can be paid monthly, quarterly, bi-annually or annually depending on the company

Private Mortgage Insurance

If the down payment is less than 20% of the purchase price, the lender will require Private Mortgage Insurance (PMI). PMI protects the lender in case of default. Fees vary based on lender. However, once a homeowner has paid down the mortgage to less than 78% of the purchase price or has at least 20% equity in the home, PMI payments can be cancelled.

Escrow Account

An escrow account is mandatory for FHA and other loans and usually 1/12 of the mortgage premium to cover homeowners insurance and property taxes. Escrow accounts are mandatory for homeowners who have a down payment of less than 20%. If you do not have an escrow account with your mortgage, you are responsible for paying your insurance premiums and property taxes on your own. They can be paid monthly or annually. 

Closing Costs

Includes loan origination fee, attorney fees, prepaid homeowners association fees and taxes. The costs ranges from 2% to 5% of the home purchase price.

Appraisal fee

The cost for an appraiser to decide how much your house is worth to assess the appropriate mortgage loan amount. Costs vary by size of home, state and lender. Fees range from $250 to $600.

Lender's origination fee

Administrative fee charged by lenders. Varies by home sale price and lender. Fees range from a few hundred to $900.