The Hidden Costs of Home Buying or Renting

Weighing out the costs of renting or buying your home comes with a lot of factors. Take it from SaverLife member Tenesha. She’s interested in buying a forever home for her and her daughters but feels like there are so many additional fees and requirements, she’s not ready to commit. “It feels like I’ve got to come up with this million dollars myself just to buy a house,” she explains.

To Tenesha’s point, buying a house is complex, and it does require different payments and requirements to complete the purchase. And the same can be said for renting, too. That’s why it’s important to know up front what you’re committing to, including the unspoken fees you might have to cover.

Let’s break down a few common hidden costs, so that you can negotiate your lease or buyer’s contract with confidence.

Hidden Costs of Home Buying

1. Closing costs

When some people think about the cost of buying a house, they focus on the down payment they’ll need to make — and that’s definitely an important number to keep in mind! But there are other costs that you’ll have to pay on closing day: costs like loan origination fees, home inspection fees, and filing or recording fees. Whether or not your down payment is lumped in with these other closing costs, be aware that these fees can add thousands more to the final cost of your home.

2. Property & school district taxes

As a homeowner, you’ll be required to pay property taxes. Depending on the selling price of your house and a variety of other factors that vary by state, you will need to pay anywhere from a couple hundred to thousands of dollars. Additionally, if you live in a school district that collects taxes from residents, you may also be required to pay annual fees that fund the local school system.

3. Insurance & fees

  • Homeowners Insurance: Once you purchase your home, your lender may require you to carry a homeowners insurance policy. Depending on the value of your house and where you live, you may have to pay an additional expense every month to maintain this coverage. 
  • Lenders Title Insurance & Buyer Title Insurance: According to the Consumer Financial Protection Bureau, most lenders require you to purchase a lender’s title insurance policy, which protects the amount they lend. You may want to buy an owner’s title insurance policy, which can help protect your financial investment in the home. Title policies’ costs vary by state, but they usually average about 0.5% to 1.0% of the home’s sale price and are included in the closing costs.
  • Mortgage Insurance: Depending on your type of home loan and the amount of money you have to put toward the down payment, you may need to pay mortgage insurance: private mortgage insurance (PMI) for conventional loans or upfront mortgage insurance premium (MIP) for Federal Housing Administration (FHA) loans.
  • VA Funding Fee: The VA funding fee is a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Learn more about VA Funding Fees here.

4. Updates & maintenance

Making a home your own is an exciting aspect of homeownership, but the costs can add up quickly. It’s helpful to make a list of all your new homeowner expenses. Planned expenses could include things like new window treatments, repainting, replacing flooring, lawn care, tree trimming, etc. Unexpected expenses could include a plumbing leak or an A/C repair. Make sure you budget for planned expenses, and make sure you’re contributing to your emergency savings for surprise expenses.

Hidden Costs of Renting

1. Application fee

Most property owners will require you to pay a fee when you submit your rental application. While application fees can vary in cost and usually cover the administrative tasks required to process your application, it can still be frustrating to pay up front when there’s no guarantee you’ll get accepted into the community.

2. Pet deposit/pet fee

If you want to rent a place that allows you to keep your furry friends, it’s very likely you’ll have to pay extra for that privilege. Some landlords charge a one-time pet deposit, which may or may not be refundable at the end of your lease. Others add an extra monthly fee onto your regular rent. Either way, expect to pay more if you plan to move in with a pet.

3. Renters insurance

Renters insurance is usually optional for tenants (but be sure to double-check your lease agreement before signing). If you want to protect your valuables in the event of a catastrophic event like theft or a fire, taking out a renters insurance policy may be a good idea. Renters insurance is usually a lot cheaper than homeowners insurance, so you may only end up paying $30 to $40 a month. Keep in mind that if something happens, you could still be on the hook for your deductible. (A deductible is the amount you must pay out of pocket before your insurance coverage kicks in.)

4. Pest control & lawn care

Make sure you understand your lease agreement when it comes to pest control and lawn care. Who is responsible for hiring and paying exterminators in your lease? If you’re renting a property with outdoor space, who is responsible for mowing the lawn or trimming trees in your lease agreement? If your lease states that you are responsible, make sure you include these expenses in your budget.

Sign on the dotted line – with confidence

As you can see, buying a home and renting both come with their own set of hidden costs. However, these costs don’t have to remain hidden from you. With a clear understanding of all the extra expenses that may come your way, you’ll be in a great position to make the best choice for yourself and your family. To keep educating yourself, be sure to sign up for SaverLife today.