First-time homebuyers making the leap from renting often discover an expensive truth: the price tag on a home is only part of the actual cost.
Beyond the usual down payment and monthly mortgage bills, buyers face “hidden costs” that are not always advertised in the same font as the pros of homeownership. For Black homebuyers already navigating systemic barriers to homeownership, these costs can be a serious setback.
“When you see all these advertisements of getting a home with zero down, buying a house when broke, or closing on properties and getting money back, all of [that] could be true, to an extent. However, there are out-of-pocket expenditures that are non-negotiable when you’re purchasing a home,” said LaKendra Coffman-Harper, a broker and real estate mentor at the Five Star Team in Houston with 18 years of industry experience.
The non-negotiables
Among the first expenses are earnest money and option fees.
Earnest money, while not a requirement, is a good-faith deposit a buyer puts down to demonstrate seriousness about buying a home. Ranging from 1% to 10% of the home’s purchase price, it is paid when signing the purchase agreement or the sales contract and can be part of the offer. If the sale takes place, the earnest money is applied to the down payment or closing costs. But if the sale fails, the amount is refunded.
Meanwhile, an option fee is a payment made by a buyer for the unrestricted right to terminate a real estate contract within a specified period, also called the “option period.” If the contract is terminated during the option period, the option fee, if not claimed, is sent to the sellers. This fee is negotiable, ranging from $25 to $50 per day for homes in the $250k to $1 million range in Houston.
What about inspection fees?
“The inspection is for you, not for the sellers of the home. This is to equip you with the knowledge of what potential issues may or may not be occurring with that property,” Coffman-Harper explained, adding they range between $400 and $600 depending on the home’s size and features.
Next comes the appraisal, which determines the market value of a home and how much a lender is willing to lend. A lender typically orders an appraisal, and the results can be used by a buyer or a seller to ensure both are getting a fair deal. The appraisal ranges from $600 to $700.
“A lot of those things can catch you by surprise,” said LaQuana Davis, a real estate professional at the Brooks & Davis Real Estate and the lead of LaQuana Davis Realty Group.
Davis warns buyers against paying for an appraisal during the option period, especially amidst ongoing negotiations and repairs.
“If they’ve [homebuyers] already paid for the appraisal and things don’t go right in this option period, where they have the right to walk away, then now they don’t get that money back from the appraisal,” Davis said. “Get out of underwriting, get your contingency from the underwriter, conditional approval and then you pray for your appraisal.”
Closing costs: negotiable, but pricey
First-time home buyers often do not accurately gauge the total closing costs. Some may not even know there are ways to reduce the payment, which depends on the loan type and where the home is located.
It is a cost paid upon closing on a mortgage, covering fees for services like a home appraisal and searches on a home’s title. They typically range between 3% and 6% of the loan amount.
Closing costs include the following:
Lender and loan-related fees (subtotal: $1,500 – $4,000)
- Application fee
- Credit reporting fee
- Discount points
- Loan origination fee
- Rate lock fee
- Private mortgage insurance (PMI)
Title and legal costs (subtotal: $2,000 – $4,500)
- Attorney fees
- Closing fee
- Lender’s title insurance
- Owner’s title insurance
- Title search fees
- Transfer tax
- Recording fee
Property-related inspections and certifications (subtotal: $700 – $1,500)
- Appraisal
- Pest inspection fee
- Lead-based paint inspection
- Survey fee
- Flood certification
Prepaid and escrow items (subtotal: $3,000 – $6,000)
- Escrow funds (taxes, insurance, etc.)
- Property taxes
- Homeowners’ insurance
- Tax monitoring and tax status research fees
Other costs (subtotal: $300 – $800)
- Courier fee
- Homeowners association (HOA) transfer fee
Closing costs do not include the down payment but can be negotiated, depending on whether you are in a buyer’s or seller’s market.
While sellers can contribute to these costs and you can shop around for lenders, such costs must be negotiated upfront.
Post-move-in expenses
Even when you get the keys in hand, the bills do not stop. According to Alverna Austin, a real estate agent at Keller Williams Houston Central, new homeowners also have to prepare for utilities, flood insurance, yard maintenance and unexpected repairs, even in new builds.
“You need to have a budget and see how much you can save,” Austin said. “You need at least $2,000 set aside just for move-in and make-ready expenses, which include cleaning, fixing small things and even restocking household supplies.”
Real estate professionals believe the industry must do more to educate Black buyers and urge new homeowners to seek professional help and ask questions.
“The real estate agent is not just there to open up the door of the house for you. They should be knowledgeable and be able to guide you through the process,” Davis said.
