Hidden Costs of Buying a Home in the U.S.

Prices are low, mortgages are cheap, and buyers are finally starting to emerge from their hiding places, even if they are doing so ever so tentatively. If you’ve never purchased real estate in the United States before, it’s a  good idea to take stock of what such a venture might cost, even at bargain basement prices.

Recently, an article at MSNBC.com listed five hidden costs for U.S. home buyers entering the market for the first time. Amended for global buyers, here are some factors to consider before jumping in:

• Brush up your credit score. The mortgage rate you get and even the fees you pay are based on your FICO score. While everyone is entitled to one free credit report each year from the three major credit reporting agencies (Experian, Transunion, and Equifax), your credit report won’t tell you your FICO score. However, for $15.95 you can order a copy of your score at www.myfico.com. A score of 720 to 860 will get you the best rates. If your score is below 620, you will end up in the subprime bin and pay through the nose.
• Down payment. The days of 100% financing are gone. Many large lenders are back to requiring 20% down for a conventional mortgage. This means on a median priced home of $190,000 or so you are going to need $38,000 in cash in order to qualify for a decent mortgage or in order to get a mortgage at all.
• Fees. Fannie Mae and Freddie Mac are adding new fees to mortgage applications based on credit scores starting this year, which means for most people, the cost of a closing a mortgage is going to rise. Depending on your personal situation, the new fees can total as much as 3% of the amount financed, so for that $190,000 house with the $38,000 down payment, that adds up to another $4500 or so out of pocket.
• Inspections. Especially if you are buying an REO property that has been sitting vacant for awhile, you shouldn’t skip a thorough inspection that checks the home’s structural integrity along with all the major systems such as plumbing and electric. A full inspection can cost up to $700, but skipping one can cost even more down the road.
• Taxes and Utilities. Lots of major American cities are having major property tax and utility issues. Your bargain home won’t be such a bargain if your tax bill runs five times what you paid for the place and the county won’t adjust it, or your local utility company is in a state of meltdown (i.e. Cleveland) and you start getting $900 quarterly water bills. Check out taxes and utility costs before you make an offer, and factor the worst case scenario into your monthly budget, not the most hopeful scenario.

That said, mortgage rates are at record lows and home prices appear to have bottomed out in the West and in parts of Florida, so if, after checking through this list you feel like you’re ready to jump, by all means do. It’s harder to buy than it used to be, but those who can stand to get some great deals.