The true cost of buying a home involves more than just the home’s list price. There are a variety of hidden costs of buying a home that home buyers need to budget for. Here are five hidden costs of home buying that every home buyer should know about.
1. Property Taxes
Property tax rates vary, not only by state, but also by local municipality. Your exact geographic location will play a huge role in how much you pay annually in property taxes.
It’s essential that you understand the property taxes in your area before you commit to purchasing a home. Without planning, your annual property tax bill can throw your entire budget out of whack.
For instance in Illinois, the average property tax rate is 2.16%. That’s nearly double the national average and amounts to upwards of $6,000 per year.
Meanwhile in Texas, the average property tax rate is 1.69%. That’s much closer to the national average of 1.07% but still adds up to around $3,390 annually.
To learn more read How Are My Property Taxes Calculated?
2. Closing Costs
Closing costs can cost a homebuyer 2-5% of the home’s purchase price. That’s $3,600 - $5,400 in additional costs for a home purchased at $181,000.
The exact amount of money and the precise nature of these expenses vary by state, and in some cases, by transaction.
Check out our Transactional Expenses Download for a list of fees and who’s responsible for paying them.
3. Homeowners Insurance
Of all the hidden costs of buying a home, homeowners insurance is perhaps the most important (and expensive).
To obtain a loan, most lenders will require the borrower to obtain homeowners insurance. And why wouldn’t they? Lenders want to know their investment is protected, and you should too.
A standard homeowner’s policy costs an average of $1,631 per year, according to NerdWallet. Standard homeowners insurance does not include protection for flooding or earthquakes, so if you live in an area that’s susceptible to these natural disasters, you may want to consider adding additional coverage.
Learn more about what is and isn’t covered in a standard homeowners insurance policy by checking out our article What Does Standard Homeowners Insurance Cover?.
4. Moving Costs
Whether you hire professional movers or plan to do it all yourself there are costs associated with moving and it’s important to budget accordingly.
An in-state move in Illinois can cost between $70 - $115 per hour depending on the size of your home. But, even if you plan to go the DIY route you’ll still need to rent a truck, dolly, or other moving equipment to get your belongings out of your old home and into your new one.
We created a step-by-step moving guide to take some of the work off your plate so you can focus on working out the final details of your home sale and purchase.
5. Home Maintenance and Repair
You’re likely to encounter some unexpected maintenance and repairs as you settle into your new home. While these hidden costs of home buying are harder to predict and budget for, it’s smart to set aside some money to deal with any emergency repairs that may pop up.
A good rule of thumb is to set aside 1% - 4% of your home’s value for home maintenance. For a $200,000 home you’d be wise to set aside $8,000 for annual repairs and upkeep.
However, if you’re dealing with older mechanical systems, that small percentage may not cut it. Replacing central air conditioning can cost between $3,811 and $7,480. A new furnace can run you anywhere from $2,150 - $5,900.
One way to help set your budget for home maintenance and repairs is to regularly check your home’s mechanical systems and structures like your foundation and roof.
Download the Zimmerman Group’s Ultimate Home Maintenance Schedule to help keep you and your budget on track.
Home buying should bring you joy, not stress and financial ruin. An experienced local REALTOR® can help you determine the hidden costs of buying a home in your area so you make a smart and sustainable purchase.
Ready to buy? Contact us today.