Buying a home: Hidden costs of buying a home

May 18th, 2012 Tammi Sauer

Editors Note – this article is the fourth article in our series “Buying a home.”  In this series we’ll share tips and tricks that will help make the home buying process less confusing and more enjoyable.

As if the home-buying process isn’t overwhelming enough, there are many hidden costs of purchasing a home that you should account for in your overall mortgage budget. We’ve pulled together a quick overview to help you ensure you don’t overlook any hidden costs.

Closing costs

Closing costs are the various fees charged by those involved with the home sale. As a rule of thumb, closing costs run about 2 to 4 percent of the purchase price. They typically include:

  • Appraisal – Your lender will typically expect you to pay for an appraisal to ensure the purchase price of the property is equal to or less than the value of other homes in the marketplace of the same size and type.
  • Credit report – you’ll be expected to pay for the costs associated with pulling your credit report (and potentially your partner’s report) so the lender can identify the liabilities that you have and pay on a monthly basis, which in turn will aid in determining the interest rate for your loan.
  • Title fees and searches – In order to determine the legal ownership of a property and the liens or judgments that may be attached to the property, a title search is performed by a third party. An attorney identifies any items that must be resolved in order to convey a clear and clean title to you. The lender will then have the title guaranteed by the State of Iowa to insure against errors and omissions. As the buyer, you may be responsible for both of these costs.
  • Attorney fees – In most states, including Iowa, attorneys are required to be part of the home buying process.
  • Recording fees- These are the costs for recording the deed to the property with the county, showing you as the new owner and the mortgage, showing that there is a lien against the property for the mortgage loan.


A home inspection is a complete and detailed inspection that examines and evaluates the mechanical and structural condition of a property. As a buyer you’ll want to make sure you complete an inspection before you move into escrow. In Iowa, you should estimate roughly $400-$500 for a thorough home inspection.

Adjustment costs

Depending on when your purchase actually closes, the seller may owe you for taxes that you will be paying in the future on this home. In Iowa, the property taxes are paid in arrears. When the seller sells their home to you, they need to pay their proportionate share of the upcoming tax bill, which reflects the taxes that were incurred while they were living in the property.

Private mortgage insurance (PMI)

If your down payment is less than 20 percent, you will likely have to pay PMI. This added cost is usually rolled into your monthly mortgage payment and may remain even after 20 percent equity is reached unless you choose to refinance.


Don’t forget about your homeowners insurance. Also, depending on the location of your new home, you may also be required to purchase flood insurance.

Maintenance costs

Many people don’t think about short-term maintenance costs when buying a home, but they should. Whether buying an older home or a newly constructed home, major home systems like furnaces or hot water heaters can break down. By adding this into your monthly budget upfront, you will be able to address these costs when they occur.  

New furnishings and other related expenses

This is a hidden cost that many people overlook – especially if it’s your first time buying a home. Will you need to purchase new furniture, appliances, window coverings or other items for the home? Make sure you take these into account in your budgeting process.

Tammi Sauer

About the author

Tammy Sauer is a Mortgage Banker with MidWestOne Bank. NMLS ID 641589

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