Slightly lower mortgage interest rates have provided a glimmer of good news in a housing market that has been tough for new buyers due to high rates, high prices and low inventory.
While it might feel like the perfect time to jump at a new home, your mortgage interest rate is only one of the other costs to factor in when buying a home.
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Before you rush to buy just because of a few lower percentage points, you’ll need to factor other key costs into your budget. Experts explain what other costs you’ll need to budget for.
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Closing Costs
There are numerous sneaky little costs you wouldn’t even know to consider before buying a home, like closing costs like title fees, appraisal fees and origination charges, which can add several thousand dollars to the overall price of homes, according to Garrett Ham, a real estate investor and attorney and CEO of Weekender Management.
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“Buyers should budget at least 2% to 5% of the purchase price to cover these costs,” he said.
Escrow Fees
The monies used in the home-buying process are kept in an escrow account, explained Rinal Patel, the founder of We Buy PhillyHome.
“The third party that manages it often charges between one and two percent of the home’s purchase price in fees. This implies that the escrow fees alone for a $300,000 house might range from $3,000 to $6,000. This is a significant sum that needs to be included in your budget,” Patel said.
Points Costs
Another of Patel’s hidden expenses of purchasing a home is what’s known as points. In exchange for a lower mortgage interest rate, points are payments paid to the lender.
“A point is worth one percent of the loan amount. Paying points to reduce your monthly mortgage payment may seem like a good idea, but you must determine if it will be worthwhile in the long run. Points can mount up rapidly, so it’s critical to weigh if the expense justifies the possible savings,” Patel said.
Property Taxes and Home Insurance
Property taxes are also often overlooked.
“Make sure you understand the property tax rate in your area and budget for those payments, which are usually due twice a year. Insurance is another cost, as homeowners insurance is required by most lenders and can vary in price depending on factors like the home’s value, age, and location,” Ham said.
Maintenance Costs
Ham feels maintenance and repairs are ongoing costs that many new buyers don’t anticipate.
He recommended you budget at least 1% to 2% of the home’s value annually for things like HVAC service, roof repairs, appliance replacement and general upkeep.
HOA Costs
Don’t forget that some homes are part of a homeowners’ association (HOA), which has additional monthly or annual fees (and restrictions).
“Do your research on all the additional fees associated with owning real estate before buying to avoid surprises down the road. And remember, while mortgage rates may be low, that’s only one part of the overall cost of homeownership,” Ham said.
Downpayment
Don’t forget about a down payment, Patel said.
“Many people put off saving money for a down payment for years since it might be a substantial investment,” she said.
While there are programs that can help eligible first-time homebuyers or buyers who are veterans or seniors, it’s best to be prepared.
Home Inspection Fees
Another often forgotten expense is home inspection, per Patel, finding any problems with the house before you buy it.
“This can involve structural concerns as well as issues with the electrical or water systems, among other things,” Patel said.
Depending on the location and size of the house, a home inspection costs between $300 and $500.
Moving Expenses
If you’re moving, you may need to hire a rental company or a truck to help pack up and transport everything to your new place, said Nate Johnson, a real estate investment expert at NeighborWho.
If you’re leaving a place with any damage, you might need to pay for professional cleaning or painting. These costs can add up quickly. While you should buy a house when you’re ready, until you’ve assessed all the costs involved, it’s better to be sure your finances are together.
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This article originally appeared on GOBankingRates.com: Mortgage Rates Are Dropping, But Consider These Other Costs Before Buying a Home
