IL Estate Planning Blog

Tuesday, September 26, 2017

Hidden fees when buying a home....

Buying a home? Misc. fees could cost you thousands. Here's what to expect.

When Nors Beatriz bought a condo in this Albany Park building, she’d saved up enough for the down payment — but she wasn’t prepared to pay an extra $10,000 in closing costs. She now rents out the condo to pay the mortgage. (Kristen Norman/Chicago Tribune)

Danielle Braff Chicago Tribune September 10, 2017


The list price is just the tip of the iceberg.

You've likely heard of closing costs when buying a home, but this umbrella term includes a whole host of expenses — from appraisal and attorney fees to transfer taxes and title insurance — that you may have to pay before you get the keys to your new abode. And the jig's not up once you own. Depending on the type of property, you may be shelling out other unexpected sums, such as special assessments. If you're planning to purchase a home, make sure you plan ahead for these often-overlooked fees.


That's something Nors Beatriz, 54, wished she'd done before buying her first home, in Chicago's Albany Park neighborhood, about 12 years ago.

The artist and jewelry-maker saved $20,000 for a down payment on a $235,000 home, but she wasn't prepared to pay an extra $10,000 in closing costs. (According to online real estate marketplace Zillow, closing costs are typically 2 to 5 percent of a home's purchase price.)


“There were so many more fees than I expected,” Beatriz said. 


"I hired a lawyer who was supposed to look over the contract, but he never read it, and a couple months later, I found out that I had three mortgages — and they were balloon mortgages," she said.


She struggled to get them consolidated, but then the market crashed, and her bank went out of business.

Beatriz said that the income from her jewelry sales could not cover her monthly mortgage, and she was forced to move out of the home shortly after she bought it. 


"I still own it, but I had to rent it out because I couldn't afford to live there — it was cheaper for me to rent it," said Beatriz, who now lives in a one-bedroom in Logan Square where the rent costs less than her mortgage. "It was such a horrible experience."


Most often, buyers overlook appraisal and home inspection fees, which factor into closing costs, said Allison Bethell, a real estate investments analyst with New York-based Fit Small Business, an online magazine advising small businesses. Depending on the area and property size, these may each be required upfront, and average about $500 each, Bethell said.


She says to tack on 5 percent of purchase price for closing costs — the upper end of the Zillow estimate — depending on the property, financing and the state.


In addition, property insurance is required if you're financing the home, and Bethell said she's noticed that many buyers forget this step. They end up scrambling to purchase insurance, she said, right before closing.


"The larger the place and the more amenities — doorman, pool, gym, valet, etc. — the higher the fees will be," Bethell said.


You'll also have to pay for title insurance, which is a black hole to most homebuyers, said Jeff Miller, a real estate agent at Maryland-based AE Home Group.


"It's a cost that's tacked on right before closing, and few buyers understand its true value," he said.

The cost is usually around $1,000, according to Miller, and it protects the buyer in case the seller doesn't legally own the home he or she is trying to sell, there's a lien on the house, the seller didn't pay property taxes, or if there's another issue.

Buying a condo or town home? Factor in homeowners association fees when you crunch the numbers. While not considered a part of closing costs per se, this recurring fee is never-ending. While homebuyers typically understand their HOA costs, they may overlook their growth, said Justin Taber, a real estate agent in Columbus, Ohio.


"HOA fees are perpetual, and you'll be paying for them as long as you live in that property, despite full and clear ownership," Taber said. "In addition to this, HOA fees can drastically increase, and this is unpredictable."


On the subject of unpredictability: Special assessments could be a shocker for buyers, especially for cash buyers, said Brendan O'Donnell, a real estate agent with Center Coast Realty in Chicago.


As part of the lending process, a mortgage broker will typically review the financial health of the association, finding out if there's pending litigation or an upcoming special assessment, O'Donnell said.


"Special assessments can range from a couple hundred to a couple thousand dollars, depending on the repair or improvement being made," he said.

But if you're paying cash, you are responsible for asking those questions, and it's in your best interest to do your due diligence, according to O'Donnell. You can also request that your attorney or real estate agent request the information, gather association documents and help you navigate them.


Even with the help of a real estate agent, real estate lawyer and mortgage broker, homeowner Lisa Walker, 34, said she was shocked to discover — post-closing — that the financial health of her Lakeview condo building was abysmal, which resulted in unexpected costs.


"I don't think we would have bought this if we had known," said Walker, who purchased her condo this summer. "We bought this intending to sell it in three to five years, and I don't think this is realistic now."

While her lender received a copy of the budget, it was the budget from 2015 rather than 2017.

Walker later discovered that three of the 25 units in the building were delinquent on their condo assessments — two of which owed $5,000 — and the property management company was charging the association late fees on monthly bills.


In addition, Walker said the building only had $8,000 in reserves — rather than the $40,000 she was led to believe because she had been given a different year's budget.


These disparities, Walker said, were difficult to catch. "Unless you asked, you wouldn't notice."


Closing costs and association expenses aside, once you've moved into a home, there are bound to be a few things you'll want to fix or repair, said Teris Pantazes, co-founder of EFynch, a homeowner and handyman community of approximately 3,000 people in Baltimore and Washington, D.C.


Pantazes suggests setting aside $1,000 to $5,000 for incidentals to cover unexpected items plus maintenance while you customize your home.


"You will spend $500-plus at the local hardware store each month for the first four months of ownership," he said. "No matter how much someone plans, they always end up spending this much because they will want to make the place their own."


Unexpected items typically purchased, according to Pantazes, include air filters, ideally changed every one to four months; smoke alarm batteries, changed twice yearly; household cleaners; shower curtains; materials to hang pictures; spare screws; nails; and glue.

New appliances and equipment purchased might include a lawn mower, brooms, mops and more. And most people, he said, spend at least $200 on new tools.


"New homeowners think they have everything, but there is a big difference between renting and owning, or between an apartment and a home."


Danielle Braff is a freelance writer.

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