Hidden Costs of Buying a Home and How to Prepare for Them
When determining how much home you can buy, an easy mistake to make is focusing solely on the purchase price and your home loan. Homebuyers who fail to consider the totality of housing costs may be unpleasantly surprised when their initial budget calculations don’t reflect the full upfront cost.
There are two primary buckets to keep in mind when you’re budgeting for a home purchase: the actual mortgage and closing-related costs and move-in costs.
Mortgage-Related and Purchase Costs
These costs are tied directly to your loan and closing process. Some are one-time payments due before move-in, while others will continue for the life of your mortgage.
Closing Costs
Closing costs typically total between 2% and 5% of the home’s purchase price. Common charges include:
Loan origination fees
Appraisal and credit report fees
Title search and title insurance
Recording and escrow fees
Prepaid interest or property taxes
Your lender should provide a loan estimate early in the process that breaks down these fees, and you will receive a closing disclosure that details all these expenses before signing your closing documents.
Homeowners Insurance
Most lenders require that you prepay the first year of homeowners insurance at closing. This policy protects your home and belongings in case of fire, storms, theft, or other damage. After paying the first-year premium, which is typically bundled with your other closing costs, future payments will usually be rolled into your monthly mortgage payment.
Property Taxes
Like insurance, property taxes are often rolled into your monthly mortgage payment. Your lender sets aside a portion each month in escrow and pays the property taxes on your behalf when they’re due.
In some cases, you may need to pay a prorated portion upfront at closing, depending on when you buy. Louisiana has relatively low property taxes, but this is still a recurring cost that will increase your monthly housing budget.
The good news is your mortgage company handles all the calculations, so staying current on your property taxes is as simple as making your monthly mortgage payment. Once your mortgage is paid off, you’ll be responsible for paying property taxes directly.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, you may be required to pay PMI. This added cost protects the lender if you default on the loan. PMI is usually added to your monthly payment and continues until you reach 20% equity.
Unlike insurance or taxes, where you may have to prepay for months or a year upfront, you won’t have to start paying PMI until your first monthly mortgage payment.
You can request removal of PMI once you reach 20% equity, but lenders are only required to cancel it automatically when your balance falls to 78% of the home’s original value. It’s worth keeping track of your equity and following up once you reach the threshold.
Move-In and Ongoing Costs
Home Maintenance and Repairs
The condition of the home you end up purchasing can have a significant impact on your total move-in costs. Buying a fixer-upper might seem like a steal, but it’s important to consider the total cost of making the home livable.
Roof and HVAC replacements are often five-figure expenses, and you might have a lot of other smaller but still significant expenses, like fixing backyard fences and landscaping, interior and exterior painting, repairing broken cabinets or bathroom fixtures, and so on.
A home that needs a lot of work may have a much more affordable purchase price, but that discount can disappear quickly depending on the repairs required.
Even if nothing major comes up right away, it’s wise to have money set aside for unexpected repairs or seasonal upkeep.
Moving Costs
Whether you’re hiring a professional crew or renting a truck and doing it yourself, moving has costs. Boxes, gas, truck rental, temporary storage, and cleaning supplies can all add up. For longer moves, you may also need lodging or time off work.
Utility Deposits and Setup Fees
Some utility companies charge connection fees or require deposits when starting service at a new address. Be prepared to pay for electricity, water, sewer, trash, internet, and possibly gas, even before you’ve spent your first night in the house.
For example, Cleco Power, which serves most of Ouachita Parish, requires a deposit of between $100 and $300, depending on your credit history, and a one-time $15 connection fee. City of Monroe Water requires an $85 deposit. Those deposits are typically credited to you after 6 months to a year, but they’re still additional upfront expenses.
HOA Fees
If the property is part of a homeowners association, there may be monthly or annual dues. For HOAs in Monroe and West Monroe, this can often range from $200 to $300 per month. Some neighborhoods also charge initiation fees or require special assessments. Make sure to ask about HOA costs before closing and factor them into your monthly budget.
Furniture and Household Items
It’s easy to overlook just how many things a home needs, particularly if you’re moving into a space with more rooms or square footage. Even after the move, you may find yourself buying:
Curtains and blinds
Rugs and doormats
Furniture to fill more rooms or larger spaces
Kitchenware, tools, or cleaning supplies
These purchases often happen gradually on an as-needed basis, and the total cost can sneak up on you if you don’t keep careful track.
Planning for Additional Closing and Move-In Costs Can Help Ensure Your Budget Holds Up
Building in a buffer for expenses beyond your down payment and monthly mortgage will leave you better prepared for a smooth transition into homeownership. And if you ever have questions about budgeting or preparing for a home purchase, Ouachita Valley FCU is here to help. You can speak with one of our home loan professionals by calling 318.387.4592. You can also start your mortgage application process online or use our calculators to get an idea of what you can afford.
