Buying a home is one of the biggest financial decisions you’ll ever make, and while most buyers focus on the primary terms of the transaction such as the purchase price, down payment, interest rate, and total monthly mortgage payment, there are many hidden costs that can catch first-time buyers off guard when they are ready to close on their new home.

To help you prepare, here’s a breakdown of the often-overlooked expenses of homeownership—and how working with a real estate attorney can protect you from unexpected financial surprises down the road.

Closing Costs

When submitting an offer, a small deposit is often submitted to be held in escrow to bind the initial agreement. Next, an earnest deposit is made upon the execution of the Purchase & Sale Agreement (P&S). This earnest money typically amounts to 1-3% of the purchase price. On the day of your closing, the buyer will make a final deposit (down payment) in the amount that was previously agreed upon with your lender. The down payment makes up the initial equity that you will have in your new home, with the remaining value being your outstanding loan (mortgage) amount. 

Beyond the down payment, buyers are also responsible for closing costs, which typically cover lender fees, title insurance, escrow charges, and other transaction-related expenses. These fees typically range from 2% to 5% of the home’s purchase price and are due at the closing table.

The total amount needed prior to closing (referred to as the cash-to-close amount) should not come as a surprise, however. This amount can be found in the closing disclosure that either your loan originator or closing attorney can provide for you. The closing disclosure (CD) will outline every expense that is tied to the transaction. These closing costs include:

• Loan costs such as the application fee, underwriting fee, loan origination fee, and any points you purchased to shop your rate down;
• Expenses like inspection or appraisal fees, employment verification fees, title insurance (both the lender’s title insurance policy and the owner’s policy), title search fees;
• Government fees such as municipal lien fees, and recording fees for the registry/land court (including the deed, mortgage, homestead, and MLC);
• The CD can also include what are often referred to as “prepaids” which are the homeowner’s insurance premium, any prepaid interest on the loan, and property taxes;
• Lastly, depending on the type of sale the CD could also include upfront HOA contribution fees, HOA processing fees, and home warranty fees.

Below we breakdown all of these costs and different sections of the CD in greater detail.

1. Loan Costs

Loan costs are expenses paid directly to your lender. These fees can vary drastically depending the bank that you are using to finance your purchase. Some banks charge a few hundred dollars for things like application, underwriting fees, or origination fees, whereas some can charge upwards of a few thousand dollars for similar expenses.

The biggest portion of this costs would be any points paid to “pay down” your interest rate. Depending on how many “points” you buy, this expense could be several thousand dollars. We often recommend buyers attempt to work with their underwriter to negotiate a lender credit. The lender credit is a discount applicable to certain buyers that a lender will offer to assist in paying the closing costs. This credit can then be applied directly to your interest rate to pay it down over the life of the loan. Paying for points to buy down your interest rate will only make sense for certain buyers that plan to be in their home long term. For “starter” homes or properties that a buyer doesn’t intend to stay in for the full life of the loan, a buydown may not make economic sense.

2. Home Inspections & Appraisal Fees

Before finalizing a home purchase, almost all lenders require an appraisal be performed before writing the loan. This is completed by an appraiser of the bank’s choosing. The appraisal is necessary to provide the bank with reassurance that the property is worth the value that you are purchasing it for, which in turn gives them protection on their loan. In competitive markets, many buyers will include an appraisal gap clause, which states that if the value of the appraisal comes in below the offer price, the buyer will be responsible for covering the difference. This in turn makes your offer more attractive because you are willing to come up with the additional funds needed to meet the "gap" between the appraisal price and the offer price. Similarly, if you are concerned that your offer price is much higher than what you expect the property to appraise for but you are unwilling to make up this difference, then it is even more imperative that you work with your real estate broker to include this clause in your offer. In this scenario, you can specify that you are only willing to cover up to a certain amount (or percentage) if the appraisal comes in below the offer price, or not cover it at all. In turn, this gives you an exit ramp if the appraisal falls short, where you can back out of the deal and still be entitled to have your deposit returned, or you can renegotiate the purchase price altogether. While this route offers greater protection to the buyer, it makes the offer less attractive because it ultimately reduces the price that the seller would receive. For a full list of clauses to consider and how to protect your escorew deposit, please read our full legal blog post here. Appraisal fees typically range from $250-$750 dollars.

It is highly recommended that all buyer’s get a home inspection to identify any structural or maintenance issues. Inspection fees are not included on the CD as they are typically done before the P&S is signed. Most offers or P&S agreements contain inspection contingency clauses that allow a buyer to back-out of the transaction if the inspection reveals a certain amount of damage or necessary repairs that are required. There are also specialty inspections that can be done such as radon, mold, or pest inspections, all of which would be paid for by the buyer before the signing of the P&S. For a full list of typical contingency clauses included in a P&S agreement, please read our full legal blog post here. Inspection fees can range from $350-$1,000, with any specialty inspections costing a few hundred dollars each.

3. Property Taxes & Homeowners Insurance

New homeowners are often surprised by their property tax bill, which varies by location and can range from 1% to 3% of the home’s value per year. Massachusetts has higher state and local real estate taxes compared to other areas of the country. Depending on when you purchase your home, an estimate of the taxes for the current period will be due at the time of closing. Following the purchase of your home, your lender will estimate the taxes due for each fiscal period, keep them in escrow, and pay them to your municipality directly. This is because if you fail to pay your tax bill, your town can place a lien on your property making it subject to foreclosure. At foreclosure, outstanding and unpaid tax liens take priority over your mortgage. This means the taxes that you fail to pay will be the first item due before the bank gets paid back on their loan. As such, banks hold the funds in escrow to pay your taxes on your behalf to protect their investment and reduce the risk of a default.

Additionally, lenders require homeowners’ insurance, which typically costs $1,000 to $2,500 per year, depending on location, home size, and coverage levels. The annual cost typically amounts to roughly 0.5% of the home’s value. However, many buyers don’t account for this cost before their closing, and only incorporate this expense into their budget once they’ve completed the purchase. Instead, make sure to get quotes on homeowner’s policies while you are searching and placing offers on specific properties so this figure won’t come as a total surprise.

If you fail to put down at least 20% of the home value as a down payment, your lender will also require you to pay private mortgage insurance (PMI). PMI has no benefit to you, the buyer. It is an insurance policy that protects the lender should the buyer default on the mortgage. It is an extra layer of protection for the bank since you are purchasing the home with limited equity by failing to meet the standard 20% down payment. Your monthly PMI payment will typically range from $100-$200 per month depending on your initial down payment on the home.

In today’s real estate market, many buyers are fine with putting less down and paying the PMI for a few years. Then, if your house has appreciated enough in value, you can request your house be re-appraised. If your total equity with the gain in appreciation combined with the total paid towards the principal exceeds 20%, then you can have PMI removed from your monthly payment immediately. The sooner a buyer can eliminate PMI the better, as it is an unnecessary expense that has no direct benefit to the actual homeowner.

4. HOA Fees & Maintenance Costs

If your new home is in a condo or planned community, you may owe Homeowners Association (HOA) fees, which can range from $100 to $500 per month. These fees cover any shared upkeep of common areas, amenities, or repairs that need to be done. Even without an HOA, ongoing maintenance costs (roof repairs, landscaping, plumbing, etc.) can add up, so financial planners often recommend budgeting 1-2% of your home’s value annually for general upkeep. Before buying, review any HOA rules carefully to avoid unexpected fees once you purchase your new home.

Also be sure to review any restrictions or covenants that may be included in the HOA rules and guidelines (often referred to as CCR’s – covenants, conditions, and restrictions). These may place certain restrictions on how you can use your property such as:

• The color you can paint your home;
• Restrictions on installing solar panels;
• Outlawing recreational vehicles from being parked in your driveway;
• Landscaping guidelines like plant types, tree trimming, and general upkeep.

5. Title Insurance and Legal Fees

One of the most overlooked but crucial costs that is due at closing is title insurance, which protects you from potential ownership disputes or hidden liens. If you are using a lender for your purchase, the lender is required to purchase their own lender’s policy of title insurance to protect their investment. The lender’s policy does not protect the actual homebuyer from future title issues. Therefore, we strongly recommend buyers to purchase an owner’s policy to give themselves protection against any future title disputes or concerns.

The owner’s policy of title insurance ensures that the owner has good marketable title to the property free of any encumbrances or liens that would adversely affect the property, except those made known to the buyer, and ensures to the owner that if any such liens, encumbrances, defects or other title problems become known, the title insurer will defend the buyer’s title to the property. For a full overview of title insurance and its importance to your transaction, please read our full legal blog here.

Additionally, working with a trusted real estate attorney like those at Lane, Lane & Kelly, ensures your purchase agreement, deed, and title documents are legally sound, preventing costly legal headaches later. Also be on the lookout for miscellaneous legal fees that some attorneys attempt to incorporate into the transaction. Some attorneys attempt to hide these fees through names like “Administration Fees” or “Title Search Fees.” At Lane, Lane & Kelly, we always provide transparent pricing and charge a flat fee for all real estate buyers and sellers.

What Happens After You Move In

Unfortunately, as a homeowner, the expenses don’t stop at the closing table! Utility costs, home improvement costs, and general repair costs are the gifts that keep on giving for new homeowners.

Utility Costs

It is estimated that homeowners spend on average anywhere from $3,000-$4,000 a year on energy. This includes electricity and natural gas. Be sure you have a good grasp on whether the property you are purchasing is oil or natural gas, as these expenses can vary drastically over the course of a full year. Especially when you consider the harsh Massachusetts winter months. Homeowners will also receive a water bill from their municipality, which is typically paid each quarter (every 3 months). When purchasing try to work with either the listing agent, your own agent, or nearby neighbors to get an estimate on utility bills and what you can expect to pay.

Home Improvement & Repair Costs

Once you finally move in and have a place to call your own, one of the most exciting parts is making the house your own. In today’s competitive market, many homeowner’s purchase homes despite knowing there are several projects that need to be done. While these projects can appreciate the value of your home down the road, they can be expensive upfront costs. These projects could be low hanging fruit like painting the walls or replacing the toilets, or they could be full renovations such as building a new deck or remodeling your kitchen. Whether you are fully prepared to DIY or hire a contractor, whichever route you go there will be substantial expenses tied to improving your home.

Home renovation projects are often budgeted for in advance and are often considered by many homebuyers to be the fun part! Homeowners also need to prepare themselves for the unexpected repair costs that come with owning a home. According to a 2023 Thumbtack report, general home maintenance and upkeep costs roughly $500/month on average. It is also recommended to maintain an emergency fund. You could buy your home and the very next day the hot water heater could breakdown, and there goes another $5,000-$10,000 out of the blue.

Final Thoughts: Be Prepared Before You Buy

Buying a home is an exciting milestone, but unexpected costs can quickly add up if you’re not prepared. By understanding these hidden expenses and working with a trusted real estate attorney, you can avoid financial surprises and protect your investment. Protect your biggest asset and make your home buying experience as stress-free as possible by contacting the real estate attorneys at Lane, Lane & Kelly. We understand the intricacies of Massachusetts real estate law and have proudly been helping first time homebuyers across the South Shore navigate their purchase since 1938.

Need help with your home purchase? Contact our office today!

This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this blog you understand that there is no attorney client relationship between you and Lane, Lane & Kelly, LLP.