Hidden Costs First-Time Home Buyers Must Know

When buying a home, the average closing costs will be about two to five percent of the purchase price. And there are a lot more hidden fees when buying your first home. Pre-approval fees and homeowners insurance premiums are just a few of the hidden costs first-time home buyers must know. Budgeting for these fees ahead of time can protect your pockets and your peace of mind. Scroll down to learn more and compare home insurance quotes for free.

Free Insurance Comparison

secured lock Secured with SHA-256 Encryption

Madison Smith is the leading home finance expert at Best Company. She works to help others make positive financial strides in their lives by providing expert insight on anything from first-time home-buying tips to real estate investing. She has been featured on Forbes, The Lenders Network, Rocket Mortgage, and more. Follow her on Twitter @maddie_mingus for weekly doses of thought-provoking fin...

Full Bio →

Written by Madison Smith
Home Finance Expert Madison Smith

Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

Full Bio →

Reviewed by Laura Walker
Former Licensed Agent Laura Walker

UPDATED: Apr 8, 2022

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.

Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.

Many first-time home buyers go into the process with only a general home budget. It is a great start, but there are other costs linked with home buying that you need to know. You don’t want to end up blindsided by hidden fees when buying your first home.

Now when we say “hidden,” we don’t mean they’re kept a secret. We just mean that most first time home buyers don’t know about all of them upfront. So we want to give you the full list so that everything’s out in the open before you even get started.

The five tips below are designed to help first time home buyers like you navigate all the financial obligations that arise with homeownership:

  • Pre-approval Fees
  • Homeowners insurance
  • Home Inspector Fees
  • Closings Costs
  • Maintenance Fees

Worried about finding insurance at an affordable rate? Here are 22 Tips for Finding Cheap Insurance Coverage for your new home.

The Hidden Cost of Pre-Approval Fees

When you have a general idea of what you’re willing to spend on a house, it’s important to get a mortgage pre-approval letter from a lender. This is typically your first step in the home buying process because it helps you do two main things.

  • It increases your odds of finding a realtor
  • It makes you appealing to sellers because they know your offer will be legitimate

Getting pre-approved from your lender is like proving to the bank you are in a financially good spot to take out a mortgage. Your lender will go over your credit score, verify your income, and check out your DTI (debt-to-income) ratio to determine the likelihood you will make payments faithfully.

It’s smart to visit a few different banks to get a feel for which lender can most closely meet your needs.

Buying a house is a big decision. You’ll want to make sure you are choosing a lender that meets your needs best. Start by comparing different mortgage lenders.

Cost: If you get pre-approved expect to pay about $200—$400 to your lender for the application, but some banks do not charge anything.

white house, red trim, tree, leves, white fence, bushes, windows

Compare The Best Insurance Quotes In The Country

Compare quotes from the top insurance companies and save!

secured lock Secured with SHA-256 Encryption

The Hidden Cost of Homeowners Insurance

When you purchase your first home you’ll be required to get homeowners insurance. Basic homeowners insurance will help you financially protect your home when costly accidents and dangers arise.

Homeowners insurance works similarly to car insurance or life insurance. You pay a monthly or annual premium, plus a deductible when house damage fees arise.

However, you don’t get a monthly bill as you do for car insurance. Instead, it’s tagged on to your mortgage statement since your bank technically “owns” the home. So your insurance payment is part of your mortgage payment.

Homeowners insurance is tricky to put a price on because it is so customizable. For example, you can choose to pay a lower premium with a higher deductible versus paying a higher premium with a lower deductible.

Those who opt to pay a higher homeowners insurance premium will typically save money in the long run.

However, not every family can afford to pay a higher monthly/annual premium, hence the need for alternative options.

In addition, homeowners insurance varies by the type of house as well as the state that you reside in. To help you comparison shop for the best rates, check out this homeowners insurance tool.

Cost: As a general estimate, the average annual premium cost for homeowners insurance is around $1,200 annually. Plus you’ll pay a deductible fee on a case by case basis.

The Hidden Cost of Home Inspection Fees

Even though you may be in love with a house, it is important to get it inspected by a professional before you sign the dotted line. Home inspections should either persuade you to move on from a house or commit to it.

You may want to move on from a house if the inspection raises red flags that could end up costing you a lot of money in repair fees down the road.

You may be tempted to overlook that old roof now, but when the next heavy rainstorm comes in, you may find yourself spending thousands of dollars repairing the roof on your new home.

black binders, paperwork, filing, stacked, binders stacked, closing cost, home owner

On the other hand, the inspection may show the house is perfectly fine. You may have reassurance there are no hidden dangers or money pits lurking beyond what you originally saw.

Cost: Home inspection fees can range anywhere from $200—$400 depending on the size of the home and will ultimately give you peace of mind on your decision to either purchase or walk away.

The Hidden Cost of Closings Costs

Closing costs complete the financial and legal transactions for your new home. They’re the costs of all the services and documentation needed to close the deal on your home to make it legally yours. Some of the items included in closing costs are:

  • Appraisal fees
  • Title insurance
  • Title searches
  • Deed-recording fees
  • Credit reports
  • Taxes

What is great about closing costs is that it is not always the buyer who is expected to pay these fees. Closing costs can fall on the buyer, the seller, or both, depending on the circumstances.

For example, if a person is trying to sell their home quickly, buyers often negotiate and ask the seller to cover closing costs in exchange for a quick home sell. Either way, it is wise to keep in mind that you could be needing a few extra thousand dollars to secure your new home.

Cost: On average, closing costs will typically be approximately two to five percent of the home’s value.

Compare The Best Insurance Quotes In The Country

Compare quotes from the top insurance companies and save!

secured lock Secured with SHA-256 Encryption

The Hidden Cost of Maintenance and Upkeep

Whether you’ve purchased an existing home on the market, or you’ve built a new one, there’s no doubt about it — you’re making a sizeable investment. But it doesn’t end there.

When you invest in a home, you become responsible for everything on your property. You’re responsible for keeping up with the general maintenance of your home, including landscaping fees, updating appliances, weather damages, etc.

Think of your house’s potential annual maintenance cost. This can help you make an accurate decision of what you can truly afford, or what might be a stretch.

Those houses with pools and a luscious garden may be beautiful, but can you afford the extra $2000 in annual maintenance?

You should note that maintenance fees can be significantly reduced if you choose, or are capable of handling certain repairs and upkeep services on your own.

Cost: It is typical that you will spend about one to two percent of the value of your home to cover home maintenance fees each year. It’ll all depend on what you hire out and what you can DIY.

Free Insurance Comparison

Compare quotes from the top insurance companies and save!

secured lock Secured with SHA-256 Encryption