11 + 4 Hidden Homebuying Costs to Keep in Mind

Editor’s Note: This article was updated on July 13, 2023.

Buying a home remains a dream and milestone achievement for the average American and still represents the most significant avenue for securing and growing equity. But, hidden home-buying costs often surprise buyers and not just first-time buyers. And, while some of the hidden costs of buying a home are one-time expenses, others are part of the standard costs of ownership, while still others will appear unexpectedly and require urgent attention and funds.

Although the sticker price is, by far, the biggest expense when buying a home, hidden homebuying costs can quickly add up to additional expenses in the tens of thousands of dollars. Specifically, third-party fees, unexpected repairs, maintenance, furnishing, landscaping, appraisals, taxes, insurance, documentation, utilities, new build defects and hazardous materials are just some of the many hidden costs of buying property. As such, they can quickly overstretch buyers’ budgets and even affect their financial stability and overall liquidity.

These are the most important 11 hidden costs of buying a home:

Home Inspection Fees

Although it might be tempting to forgo a home inspection (especially if not legally mandated), a pre-purchase home inspection is one of the most essential steps to take when buying a home. That’s because a professional home inspector can easily identify issues both small and large to give homebuyers a clear understanding of the property’s condition and long-term stability. This helps prevent — or at least mitigate — expensive major repairs down the road that can cost thousands of dollars.

These include expensive fixes, like replacing the electrical wiring, overhauling a defective sewage system, eliminating pests, mitigating water damage, fixing foundation cracks, repairing roof damage, removing mold and more.

Appraisal Fees

Another step that homebuyers tend to skip unless it’s specifically required is employing a professional appraiser for an accurate estimate of the home’s value, which can otherwise help reduce the chances of overpaying for a home. (It’s worth noting here that lenders generally require an official appraisal before signing off on a mortgage loan.)

Closing Costs 

Closing costs are among the most common hidden homebuying costs, especially when it comes to first-time buyers. Depending on a range of factors, closing costs will start at 3% of the loan amount on the low end, but can go as high as 6%. Closing costs can include title searches and title insurance; deed recording fees; loan origination fees; application fees; underwriting fees; assumption fees; rate lock fees; courier fees; escrow funds; prepaid interest costs; and more.

Transfer Taxes

Several states don’t charge any transfer taxes at all, some, like New York, require the seller to cover them, and others require that the buyer and seller split transfer taxes equally. Meanwhile, some states allow the buyer and seller to negotiate who is liable for transfer taxes. This will often reflect the state of the housing market — specifically, whether it’s a seller’s or buyer’s market.

However, a large percentage of states require the buyer to pay transfer taxes, or at least a portion of them. While this will be a very small or even negligible amount in some states (like Arizona’s $2 flat fee), in others (like New Jersey) they can reach into the thousands of dollars.

Homeowners Insurance

Homeowners insurance is essential to protect your home and investment from unforeseen events, like natural disasters (floods, wildfires, earthquakes, hurricanes or tornadoes) or man-made damage, like theft and burglary; or; vandalism; and more. Here again, insurance policies have a wide range of costs depending on location; coverage amount and range; and the age and condition of the building, among others. That’s why it’s essential to research insurance quotes and shop around for the coverage you need for the best price.

Third-Party Services

Third-party services are provided by the entities that are involved in the homebuying process and can add significant hidden homebuying costs. Among the most common are attorney fees; real estate agent/broker commissions; credit report costs; notary fees; tax monitoring and tax research costs; private mortgage insurance; land surveys; flood certification fees; HOA transfer fees; and more.

Property Taxes

Many buyers — and not just first-time homebuyers — fail to account for the long-term costs of property taxes. Although there are a handful of states that don’t charge any property taxes, most of them do. What’s more, tax rates and the annual tax bill also vary significantly from state to state: Notably, Hawaii and Alabama charge the lowest rates at 0.28% and 0.41%, respectively, making them the only states where the annual property tax bill for an average home was less than $1,000 in 2023.

On the high end, property taxes can reach several thousands of dollars for an average home, with the average taxation rate even surpassing 2%. Among them, New Jersey has the absolute highest rate at nearly 2.5%, resulting in an average tax bill north of $5,000. This wide discrepancy means that, when it comes to the hidden costs of buying property, property taxes are one of the highest expenditures.

Repairs, Maintenance, Renovations, Upgrades & Landscaping

Whether it’s a leaky roof, faulty electrical wiring, or a broken HVAC system, unforeseen emergencies can arise, requiring immediate attention and financial investment. Renovations can also become expensive endeavors — especially when it comes to remodeling kitchens and bathrooms or replacing outdated fixtures or flooring.

Additionally, landscaping is often overlooked, even though it contributes to a property’s curb appeal and overall value. Namely, neglected yards, overgrown trees or inadequate drainage systems can lead to expensive fixes. Moreover, adding outdoor amenities — like patios, decks or gardens — can significantly enhance the enjoyment of the property and its future resale price, but may noticeably increase the hidden costs of buying a house.

Hazardous Materials

Lead, asbestos and arsenic are just the tip of the toxic building materials iceberg. In fact, the Living Future Institute lists more than 800 harmful materials previously used in construction (presented in its ominously titled Red List).  Most commonly found in older piping or paint, lead is a leading contaminant, leaching into drinking water, and can even become airborne. According to the EPA, homes built until 1986 may still contain lead.

Meanwhile, the health hazard and high costs of asbestos have caused enough of a stir that most buyers are aware of its dangers, but its threat cannot be overstated: Inhalation or ingestion can lead to mesothelioma, a rare and aggressive cancer. Similarly, arsenic was also used to prevent wood rot as late as 2003, so it may still be present in homes that are more than 15 years old.

Utilities

Utilities are another one of the leading expenses among the most important 11 hidden costs of buying a home. Prices for electricity, water, gas, cable, internet, and trash pickup can vary significantly even from one county to another and can result in unexpectedly high monthly expenses. This is why researching average utility costs in the area you’re looking to buy a home in is an essential step of the homebuying process.

This is even more important when moving to a new state — especially one with a different climate and when upsizing your home — and/or when moving from an apartment or condo to a detached home as these bills contribute significantly to the hidden cost of buying a house.

Moving Expenses

Often overlooked by homebuyers, moving fees can also add to the hidden costs of buying a house. Moving expenses will include packing supplies, renting a moving truck or employing professional movers, as well as storage fees. To avoid this hidden cost of buying a house, make sure to shop around for the best rates beforehand to avoid a last-minute upcharge.

These 11 hidden costs of buying a home can be faced by most buyers, but newly developed properties come with their own challenges. In truth, this scenario is even more likely because most consumers don’t even consider a new build’s hidden costs — after all, it is a new property, right? Unfortunately, there are plenty of hidden costs of new builds, too.

4 Most Common New Build Hidden Costs:

Missing Essentials

Although some newly constructed homes will include appliances, many don’t — or they include only a portion of them. And, the current price of appliances means these can quickly add up to thousands of dollars in additional costs. Landscaping is another new build hidden cost of buying a house, especially because many buyers are unfamiliar with just how expensive landscaping can be. Other missing essentials can include window treatments, furniture and security systems.

Hidden House Defects

Hidden house defects not only influence the buyer’s budget down the line, but they can also significantly affect the buyer’s quality of life and even force them to temporarily live in another residence. For example, poorly functioning sewage systems, improperly raised roofs, and foundation defects can turn a home into a health and safety hazard.

Other common hidden house defects — like poorly fitted windows and doors; drainage issues; overlooked painting; gaps and cracks in the driveway; electrical defects; badly built trusses; and improper fire blocking — can all significantly increase a new build’s hidden costs. Therefore, to avoid or at least minimize the costs of buying a house, it’s recommended to have a home inspector walk through the new property to identify any potential issues.

Building & Impact Fees

Depending on the location and size of a new home, building and impact fees can quickly add up to tens of thousands of dollars. As such, these can significantly raise a new build’s hidden cost and potentially price out a prospective buyer. Impact fees are usually a one-time payment imposed by local government entities to increase local budgets and pay for new infrastructure projects, schools, parks and trails without raising property taxes. Although impact fees are imposed on developers, this cost is often passed down to the buyer.

Building fees usually pertain to the cost of building permits, which can be as low as $50 for small electrical fixes and easily cost several thousand dollars for a new home.

Finishing the Basement/Attic

Although an unfinished basement or attic is not an urgent upgrade and expense, when the time comes to address these, they can easily add up to multiple thousands of dollars. Unfinished basements and attics are common new build hidden costs of buying a house, especially for buyers moving from multi-story condominiums or apartment complexes to single family properties.

Here again, to avoid as many of these as possible, it’s essential to employ a professional home inspector, even when it comes to newly constructed properties. Then, if defects are found, they can be taken up with the builder before officially taking possession of the home. This is especially important because a builder’s warranty won’t cover everything.

Lastly, buyers should also consider how future market conditions could affect the value of their home.  Likewise, for those buying a second home or an investment property, it’s also worth considering opportunity costs — meaning other investment opportunities they would miss if they tied up significant capital into a home.

Disclaimer

Information provided on this page is purely informational. It is not and should not be regarded as investment advice.