The True Cost of Buying Your Next Home

While sellers often cover the compensation for your agent, there are costs to buying a home that you may have forgotten if it’s been several years since you last bought a home.

My clients are often surprised when they see the costs that are involved with buying a home. I’m not just talking about the down payment. At the closing table, the settlement statement will show an amount due from you, and may be more than the down payment.

Weeks before the closing, there are several out of pocket expenses that buyers often fail to take into account:

1. Home Inspection – Whether you’re buying an existing home or building a brand new one, you’ll need to hire an independent inspector to go through the house with a fine-tooth comb. And if the house has a pool or is in a rural area with a septic system or well, there are additional costs for those inspections. Plan to spend at least $500 on inspections, and up to $1,000 if there are multiple other systems on the property.
2. Appraisal – If you’re financing your purchase, the lender will require an appraisal of the property. You’ll need to pay that up front, and it runs at least $500, sometimes more depending on the characteristics of the property.
3. Survey – Depending on the title company that will be closing the purchase, you may need to pay for the survey up front. If you’re financing the purchase, a survey is required. Cash purchases may not require them, but some title companies will still require them even on a cash purchase. Surveys run anywhere from $500-$2000 depending on if the property is in the city, the suburbs, or rural.
4. Credit Report and Application Fees – Some lenders may require you to pay these fees up front. They can run from $50-$250 depending on the lender.

Once you’re ready to close on the purchase, there are additional costs involved in the actual closing of the transaction, whether or not you’re using a mortgage for the purchase. Every real estate transaction in Texas involves a title company. Those title companies charge fees to coordinate the closing, as well as the cost of the title insurance. There are also costs for things like recording documents, messenger costs, and preparation of documents that may not be provided by your lender. The cost of the title policy varies based on the sale price of the home, and is regulated by the state. The other costs vary by title company, and are usually around $1,000.

There may also be costs associated with getting ready to buy. For example, you may have some work to do to get your finances ready for a new loan, especially if it’s a step or two up from where you are now. You may need to build back from some credit challenges or pay off debts to qualify for the best possible loan. If you have a home to sell, there are additional costs associated with that.

Deciding to buy a new home is a big decision, and there are a lot of factors to consider. While you are likely to have equity in your current home, you may not have access to that at the time you’re getting under contract for your new home. To make sure you’re fully prepared, have at least 1% of your purchase budget set aside from a down payment to cover the costs of buying a home.