A house is often the most expensive investment a person will make in their lifetime. ‍When you buy your first home, it is easy to get caught up in the excitement. When you buy a home, you might be expecting certain costs, such as the earnest money deposit and the actual monthly mortgage payments — but there could also be hidden costs that first-time homebuyers especially may not anticipate.

Mortgage lender requirements, closing costs and other lesser-known fees add up for homebuyers, especially those with little to no experience navigating the real estate market. These hidden costs of buying a home could leave you feeling overwhelmed. And you would not be alone in that feeling. In fact, studies have shown that nearly 20% of buyers underestimated the total expense of owning a home, including taxes, insurance and other unexpected disbursements.

This guide breaks down common hidden costs of buying a home so you can be prepared when it comes to closing on your dream home.


It takes an average of 45 days to close on a house. Several costs pile up within that nearly two-month window, including:

Earnest Money

When you buy a home, you will pay “earnest money” up front after a seller approves your offer and before you start checking off all the tasks required to buy a home. The earnest money deposit shows the seller that you are serious about your plans to purchase their property. Once the transaction goes through, your earnest money will be applied toward your down payment on your closing date. If you choose to back out of the deal, you may not get your earnest money back. Your contract will outline the rules about your deposit, but earnest money is usually 1% to 3% of the home’s sale price.

Down Payment

The down payment is the part of the home’s purchase price you pay upfront, rather than financing it through a mortgage. If you are buying a $300,000 home, for example, and put 10 percent down, or $30,000, you would be getting a mortgage for $270,000.

If you choose a conventional or FHA loan, a down payment is required. The amount of the down payment that is required is based on the home’s price and property type, as well as the loan product.

For a conventional loan, exactly how much down payment you need depends on the lender and loan type — you might put down 3 percent, 10 percent, 20 percent or more. With an FHA loan, you could be able to put down as little as 3.5 percent.

It is important to note that there are loans without a down payment requirement: USDA loans, for borrowers buying in designated markets (generally rural), and VA loans, for eligible service members and veterans.

Home Appraisal Fees

Your lender will want to ensure that the home you purchase is actually worth what the seller is asking. This requires a home appraisal that you get to pay for.

A designated appraisal management company (AMC) will appoint an appraiser to perform this duty. The total cost of your appraisal will depend upon several factors, including:

  • The size and value of the property
  • The type of mortgage you are applying for
  • The property’s geographical location

Expect to pay at least $300 for an appraisal, but it could be closer to $1,000 depending on your situation.

Home Inspection

While not required, having a property’s systems and overall soundness professionally inspected before a deal goes through is highly recommended and can be worth every penny. Most homebuyers still get an inspection to avoid purchasing a house with serious structural issues. Home inspections save homeowners money on repairs in the long run, but scheduling one will cost you money upfront.

The factors that affect the cost of a home inspection mirror that of a home appraisal — namely, square footage, cost of living, and the state of the housing market. The costs between the two are similar as well, with prices averaging $300–$400 but often costing more depending on where you live and what you are buying.


You do not want to show up on closing day only to find that you are unprepared for the litany of costs. These costs must be paid before you can take ownership of your house, so come to the table ready to hand over a check.

Loan Origination Fee

Some mortgage lenders will charge a loan origination fee to set up your home loan. Every lender has their own process for how they charge fees, so you may see some lenders split up the origination fee into a processing fee (for reviewing your application and assembling documentation) and an underwriting fee (to determine if you qualify for the mortgage loan).

Lenders base loan origination fees on a certain percentage (usually between 0.5% and 1%) of your total loan amount. If you apply for a $500,000 mortgage and they charge a 1% origination fee, then you’ll need to pay $5,000.

If you come across a lender that does not charge a loan origination fee, take a look at how much interest they charge. More often than not, lenders that do not charge loan origination fees charge higher interest rates which may cost you more in the long run.

Homeowner’s Insurance

During your closing meeting, you will need to prove that you have protected your investment with a homeowner’s insurance policy. Lenders typically require you to have paid for a year of insurance before signing off on your mortgage.

The cost of homeowners’ insurance will vary depending on your location, the type of coverage you’re buying and any discounts you might qualify for, and your insurer.

Broadly speaking, you can expect to pay about $35 a month for every $100,000 in home value. Coverage for rebuilding or repairs after an earthquake or flood is usually not included in standard homeowners’ policies, so you may want to — or in the case of flood insurance, have to — buy a separate policy.

If you are buying with a mortgage, the lender will typically roll the cost of insurance into the monthly mortgage payment and pay the premiums on your behalf.

Property Tax

As a homeowner, you will need to pay property taxes. Property taxes are determined by the township, city, or county in which the home is located. The effective average rate nationwide is 1.1% of the home’s assessed value, but it varies widely by state and locality, from an average under 0.4% in Alabama to about 2.2% in New Jersey. Property tax is guaranteed payment in perpetuity. Although you do not have much say in how much it is, as with any tax, strategies exist for lowering it.

Some states, like California, require payments of property taxes in two installments.

Escrow Fees

Sometimes known as closing fees or settlement fees, escrow fees are paid to the title company for handling money, the title transfer, and other paperwork for real estate transactions. These fees vary depending on your area and the title company you choose to work with, and in some cases it may be a percentage of the sale price rather than a flat rate.

Your lender pulls funds from your escrow account, but a third-party escrow company manages and operates it. They do not set it up for free, though. Average escrow fees range between 1% and 2% of a home’s sale price. This cost is often split between the buyer and the seller, though these terms may be negotiated in favor of either party as part of the initial offer.

You might also want to shop around to find a closing services provider with lower fees; your real estate agent can guide you to title and escrow companies they have had success with in the past to get you both a good deal and a smooth transaction.


Other situations add to your overall home buying cost depending on where and how you are buying your house. These costs do not apply to every purchase situation, which is why they often take homebuyers by surprise.

Homeowner’s Association Fees

Homeowner associations or HOAs are non-profit entities that can establish and enforce rules, provide basic services such as water and tend to the maintenance and repair of community amenities such as pools, roads and landscaping. If you are buying a condo or another kind of home in a community overseen by a homeowner’s association (HOA), you will likely be required to pay a monthly fee, known as an HOA fee. HOA fees are determined by the association, and highly variable. These funds go toward the services the association provides, which may include security, a pool or gym and landscaping and maintenance.

HOAs can also charge occasional special assessment fees for urgent repairs. These financial obligations may be overlooked when buyers tally up the costs of buying a home, but they add up quickly. Dues vary widely, and can change depending on the community needs.

Mortgage Insurance

Mortgage insurance offsets some of the risks a lender takes when it allows people to buy a house without substantial money down. Mortgage companies know that not everyone can afford a sizeable down payment for their homes, but small down payments equal more considerable risks for lenders. ‍If your down payment is less than 20% of your home’s purchase price, your lender will likely require you to purchase mortgage insurance. Mortgage insurance is also always required on FHA loans. This policy protects the lender if you stop making payments on your mortgage loan.

Mortgage insurance is usually a monthly fee that will be included in your mortgage payment, but in some cases it can be a lump sum that will be paid at closing — and with some loans, you will pay both a monthly premium as well as an upfront fee.

Find the Right Agent

Buying your house should be a fun and fulfilling experience. If you have done your research and evaluated what you can afford and what you truly need, finding a new home can be exciting. Learning more about the purchase process eliminates the fear of the unknown and lets you search for a home with peace of mind.

Windermere’s community of real estate professionals is our greatest asset. We have experts in all areas of real estate, from your typical starter home to condos, luxury properties, and new construction. While residential real estate is the mainstay of our business, Windermere also has offices and associates who specialize in property management, commercial real estate, and relocation services. To further facilitate the home buying process, Windermere has affiliated partners in certain regions to provide mortgage, title, and escrow services.

Call us today with any questions or concerns. Our professional Real Estate Agents will help you through this exciting process. (951) 369-8002