Buying a home is one of the biggest financial decisions you'll ever make, and while most buyers are aware of the obvious costs, there are often hidden expenses that can catch them by surprise. It’s easy to focus on the price of the property itself, but the additional costs associated with purchasing a home can add up quickly. Here’s a look at some extra costs that many buyers forget about when planning their budget.
1. Closing Costs
Closing costs are a collection of fees that buyers must pay at the closing of the property sale. These can include legal fees, land transfer taxes, title insurance, and appraisal fees. On average, closing costs typically range from 2% to 5% of the home's purchase price. Your real estate agent or lawyer can provide an estimate, but it's important to be prepared for these additional expenses, as they can often catch buyers off guard.
2. Home Inspection Fees
A home inspection is a crucial step in the buying process, allowing you to understand the condition of the property before finalizing the sale. While it's an expense that can save you from costly repairs down the road, many buyers forget to factor in the cost of the inspection itself. Depending on the size of the home and the type of inspection (such as sewer scope or pest inspections), the cost of a home inspection typically ranges from $400 to $700 or more.
3. Property Taxes
Property taxes are a recurring cost that homebuyers often overlook when budgeting for a new home. Depending on the location, annual property taxes can vary widely. In some areas, they can be a significant portion of your monthly housing costs. It’s essential to find out what the current property taxes are before making your final decision.
Buyers may also be responsible for paying a portion of the year's property taxes upfront at closing, depending on the timing of the purchase.
4. Home Insurance
Home insurance is a mandatory expense, especially if you're financing the home with a mortgage. Lenders require you to have insurance in place to protect the property against risks like fire, theft, or weather damage. The cost of home insurance can vary depending on the location, size, age of the home, and the level of coverage, but it typically ranges from $700 to $2,000 per year.
Additional coverage, like flood insurance, may also be recommended depending on where the property is located.
5. Condo Fees or Community Maintenance Fees
If you're purchasing a condo or a townhouse, monthly condo fees are something to factor into your budget. These fees cover the maintenance of common areas, building insurance, landscaping, snow removal, and sometimes utilities like water or heat. Condo fees can range from a few hundred dollars to over $1,000 per month, depending on the amenities and services provided.
In some communities of freehold homes, there may also be small monthly maintenance fees for shared services like private road upkeep.
6. Utilities and Ongoing Maintenance
Many buyers forget to budget for the ongoing costs of maintaining a home. Utilities such as electricity, natural gas, water, internet, and garbage collection can add up quickly, especially in larger homes or properties with energy-intensive features like pools.
There are also regular maintenance tasks like lawn care, snow clearing, pest control, and seasonal tune-ups (like furnace servicing) that come with homeownership.
7. Moving Costs
Moving into a new home can be expensive. Whether you hire professional movers or rent a truck and do it yourself, there are always costs involved. If you choose professional movers, you may also need to factor in packing supplies and insurance for your belongings. Moving costs can vary widely depending on the distance and the amount of stuff you have, but it's an important expense to plan for when budgeting your move.
8. Renovation and Repair Costs
Even if you’re buying a move-in-ready home, you might still want to make updates. Renovating kitchens, bathrooms, flooring, or simply painting walls can add up faster than expected. It's a good idea to set aside a budget for repairs or improvements you plan to make in the first few years after moving in.
9. Mortgage Insurance
If your down payment is less than 20% of the purchase price, you’ll be required to pay for mortgage default insurance (commonly known as CMHC insurance). This insurance protects the lender in case you default on the loan. The cost is usually added to your mortgage amount and can range from 2.8% to 4% of the mortgage, depending on your down payment size.
Make sure to factor this into your overall mortgage calculation when budgeting.
