Buying a house is hands down one of the most significant investments that most people ever make.
Particularly for young home buyers a lot of excitement sets in with the idea of purchasing a house. Most people forget or do not realize that there are hidden costs when buying a house apart from the purchase price.
The extra expenses that most people tend to overlook are vital. Despite influencing your ability to purchase a house, some of them would determine and protect your interests in the said house. For instance, a house inspection before purchase could enable you to identify problems, such as repairs that may cost you a small fortune to rectify.
The hidden costs of buying a house vary from one individual to another. The primary reason for the variation is whether the individual is a first-time buyer or not. For instance, first-time buyers are not obligated to the pay stamp duty. This article outlines some of the significant hidden costs of buying a house that affects first-time buyers and subsequent buyers.
This is one of the greatest killers to subsequent home buyers. Stamp duty refers to the state’s fees on land transfer. When one buys a house from another and the property transfers from seller to buyer, the Government charges the buyer. The stamp duty is determined on a sliding scale according to the cost of the property.
Whereas first-time homebuyers are exempted from the stamp duty fees, these charges add to the total cost of buying a house by a non-first-time buyer. The stamp duty costs may vary from state to state but are a percentage of purchase price.
Some first-time home buyers prefer the services of an independent mortgage broker. Brokers determine and evaluate the existing property in the market. They carry out inspections and help their clients in deciding on which house to buy. However, other brokers are agents for real estate organization’s which do not charge their clients since they obtain commissions from their principals. If you are a first-time buyer and opt for an independent mortgage broker, you should be prepared to part with a few dollars.
Loan Application Charges
There are various ways of raising capital to purchase a house. Some people may decide to save the total amount in banks or SACCOS (Savings and Credit Cooperative Society). Others may, however, opt for obtaining loans from either banks or other financial institutions to purchase a house.
Most banks and financial institutions charge their clients some fees for processing and administration upon one’s application for a loan. Loan application charges may be divided into two groups:
- Processing fee: The fees that cover the review of loan application and assembling all the necessary documents.
- Underwriting fee: The costs to determine whether one qualifies for the loan required. This money covers the review of the borrower’s assets, income, and creditworthiness to ascertain one’s ability to repay the loan and the risks to which they may subject the lender.
Such fees are not standard and vary from one lender to the other. Not all mortgages have an application fee. However, those without the mortgage application fee will mean that the borrower will pay more interest than those with the application fee. Similarly, some lenders provide waiver opportunities to be negotiated by the borrower.
Mortgage Insurance and Interest
Moneylenders always insist on the borrowers paying enough mortgage fees to cover the entire purchase price of the property since the property acts as the security for the loan taken. The mortgage insurance aims to cover any losses to the lender if the borrower is not able to repay the money borrowed.
When one takes a loan, they agree to repay the principal amount and some interest on top. The interest is called mortgage interest. Mortgage interests are vital since they add up in calculating the total amount spent in purchasing the house. The amount of interest would depend on the interest rate and the loan period. The higher the rates, the higher the interest.
Interest rates could be either fixed or adjustable. A fixed mortgage rate indicates that the interest rate exists for the life of the loan, while an adjustable-rate means that the interest rates vary according to the market. It is always best to keep good track of the fluctuations of interest rates for the case of adjustable mortgage interests to avoid unnecessary extra payments.
The loan term refers to the total period for the maturity of the mortgage. The term affects the interest rate plus the number of monthly payments. The lengthier the mortgage term, the higher the interest rate.
Property Valuation Fee
When you borrow money from the bank or a financial institution, the lender would probably hire an independent valuer to visit the property. The valuer assesses the property to ascertain whether you are making reasonable payments or not. You stand to pay for the services of the valuer in one way or the other. Once again, such costs are not standard and vary from one lender to the other.
Home Inspection Fee
It is always best to have an expert inspect the house before you take possession of it. An inspection enables you to identify any existing or potential problem in the property you desire to buy. Should there be any problem, you have the discretion to withdraw from purchasing the property or to strongly bargain with the property owner to rectify the issues identified.
This is essential since lack of it may subject you to unnecessary extra payments, such as repairs and renovations. Whilst a house inspection is valuable, it comes with costs that you would have to consider as the buyer.
Most people think that it only becomes necessary to insure your property once you take possession and begin carrying out your activities in the house. The reality is that it is not a good idea. It is important to take building insurance from the first day you sign the sale agreement.
Accidents come without notice. With the insurance in place, any disaster, should it be fire, natural catastrophes, etc., you stand to be compensated. It is best to cover for the rebuild value of all the structures in your property instead of the property’s market value. Similarly, it would help to account for the costs of renovations, removal of debris, and more.
The law in most states is strict on the right to property. The transfer of property from one person to the other requires legal and administrative actions. You could obtain legal or conveyancing services from either a solicitor or a conveyancer. The conveyancer would investigate the title to ascertain that the seller has a legal title to the said property.
Moreover, the conveyancer will check that the property has no attached caution, caveat, or other liabilities. He would further review the contract instrument to ensure that it is void of any errors.
Hiring legal advice is not cheap; however and it is essential to avoid future feuds with the vendor. It could also help you avoid paying land taxes that should have been paid by the vendor. Therefore, it is essential to take such costs into consideration when summing the total cost of buying a house.
You are aware of how utility bills such as electricity, water, and gas could cause stress and frustration. However, you should be prepared for such costs as you move to your new place. The location and size of the new site influence the cost of utilities.
If you are moving to a more substantial house, you should expect a higher amount of utility bills. Therefore, it would help to include utility bills as you figure out the cost of buying a house.
In order for the property to be registered in your name, you will need to make the down payment alongside other costs on the closing date. Some of these extra costs include:
- Pest inspection fees to facilitate pest inspection and give you a comfortable stay since some pests cause a lot of havoc. When you undertake a Building Inspection with Jim’s all our inspectors are qualified in identifying pests.
- Appraisal fees.
- A closing fee which you pay to the escrow agent if one was involved.
- Title insurance to protect you against defects in title, fraud, and liens against the title.
It would help to set aside a decent amount to cover for maintenance after you move into your newly purchased house. You might realize a few breakages or leakages immediately after moving in. With an extra sum set aside, it would be easy to offset the maintenance costs.
Moving out and moving in are also essential processes when one buys a house. It is not easy to self-move from one home to the other. Therefore, it is always best to hire the services of a professional moving company. Whereas some moving companies provide free packing and unpacking services, others charge separately for such services.
Similarly, it would be best to have good condition boxes for efficient packing of all your assets. Other moving companies provide free boxes while others don’t. The cost of moving out from your old site and moving to your new site depends on the distance between the two sites. Additionally, the cost will increase with the amount and delicacy of your assets. Therefore, it would help to have an appropriate estimate of the total cost of moving. It would be best to consider moving at a non-peak period since moving at such time is always cheaper.
These hidden costs of buying a house could easily affect your budget and subject you to financial turmoil. Evidently, there are several costs involved in the process of closing and signing the sale contract. Utility bills and maintenance costs closely follow these after you take possession and move into your new place.
Do not forget, you need to insure your property and pay the Government’s property taxes. All these costs add up to the mortgage amount or the capital for purchasing a house. Some of these costs are periodical, while others can last a lifetime so long as you continue living in your newly acquired house. Considering all these costs is essential and would save you unexpected financial bills.