The process of buying a home can be intimidating to many. The hefty price tag that accompanies the transaction can certainly be scary. However, the cost of the home itself is only a subset of the total costs associated with homeownership. There are a lot of other costs that need to be factored into your budget. Make sure you can afford everything when buying a home – especially the following:
Home Inspections: Purchasing a home, whether you are an investor or a first-time buyer, is never to be taken lightly. The truth remains: buying a house coincides with huge implications. As an investor, you are relying on a profitable transaction to grow your bottom line. In turn, homeowners want a place they can raise a family. Either way you look at it, buying a house is one of the most important financial transactions you will make. That said, home inspections are all but necessary. The price you will pay for a home inspection is well worth the trouble it could save you down the road. You might as well factor in the several hundred dollars (or more) that inspections can run into the price of the home.
Pest Inspections: The concept of a pest inspection is similar to the aforementioned home inspection: to make sure the investment is sound. However, the implications here are slightly different. By no means is a pest inspection necessary, and it will seldom alert you as to the condition of the house, but it is important nonetheless. Potential buyers really need to consider having the place inspected for destructive houseguests. Termites, in particular, can wreak havoc on the infrastructure of a home. At about $200, inspections can add to the cost of a purchase, but save a lot of trouble down the road. Savvy buyers may be able to negotiate the price of the inspection into the purchase.
Appraisal Fees: To the average buyer, appraisals may appear a bit redundant. However, they – unlike inspections – are required by lenders to carry out a loan. The cost of having a home appraised needs to be accounted for. Your lender will require you to have the property in question valued by a professional real estate appraiser. The average appraisal is somewhere between $350 and $400. However, several factors can either increase or decrease that amount. It really depends on a number of factors associated with the property. The cost gives you a professional valuation of the property in question and determines how much the lender will offer.
Closing Costs: Closing costs need to be factored into the purchase of a home. Subsequently, you are not only paying the amount that shows up on the price tag. As the buyer, you will be expected to come up with thousands of dollars in assorted fees and charges – each as inconvenient as the last. At the closing table, you should expect to pay processing fees, underwriting fees, recording fees, survey fees, title insurance fees and an assortment of other expenses. To paint a clearer picture, you can expect closing costs to be between 2 and 3 percent of the mortgage loan amount.
Moving Expenses: Moving expenses are pretty self explanatory. How else will your belongings get from the old house to the new one? The cost of using a professional moving company can vary dramatically based on several factors: the amount being moved, distance between homes, quality and others. Moving a lot of things over a great distance can even run you thousands of dollars. However, investors may see moving costs in another light. While they themselves are not moving into the property, it is entirely possible to offer moving assistance as an incentive to the seller. You would be surprised how appreciative sellers can be when you offer to pay for their moving expenses in negotiations. It may be the factor that gets them to sell to you. Every little bit helps.
Furniture Costs: Furniture costs incurred by homeowners and investors can be viewed in the same light as moving costs. Of course, homeowners are more inclined to purchase furniture to meet the demands of the new living space. It is not uncommon to upgrade furniture when moving into a new, bigger home. However, as we discussed before, investors will not be living in the house. So why would they care about furniture? The answer is easy: staging. While investors are less inclined to actually purchase furniture, there is a good chance they will hire a professional stager as part of their marketing efforts. This is not a necessary cost, but one that should be considered. Staging has proven to sell homes faster and for more money.
Property Taxes and Homeowners Insurance: The monthly mortgage premium is an obvious cost of homeownership. However, some may be unaware that what you pay every month reflects more than what you have borrowed from a lender. In addition to interest, homeowners can expect to pay property taxes and homeowners insurance. These extra costs can be significant and are no less necessary than other expenses.
Utilities: Some costs are more apparent than others, and utilities are a prime example. Everyone knows that it will require gas and electric to run most properties. However, some may not be familiar with how much utilities actually cost. That is to be expected, as different regions call for different price ranges and usage standards. Running the heater in a cold city like Chicago will be drastically different than the utilities spent in a city like San Diego. To get a sense of the costs, homebuyers should ask sellers for monthly utilities estimates before they close the transaction. Investors, on the other hand, will need to address utilities as holding costs. Throughout the process of rehabbing a home, utilities are being used. Someone needs to pay the bill.