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15 Realities of Home Buying That Could Catch You by Surprise

By Christy Bieber - Oct 12, 2022 at 10:10AM
Two adults and a child under a tiny roof in a home.

15 Realities of Home Buying That Could Catch You by Surprise

If you're buying a home, you need to be prepared for some shocks

The homebuying process can come with lots of ups and downs. Unfortunately, many people aren't ready for all the realities of home purchasing -- including the up-front costs. To make sure your purchase goes well and you're prepared for all involved, check out these 15 facts that commonly come as a surprise.

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Family smiling in front of their home.

1. Homes may cost more than you expect

Although they have started coming down in some markets, home prices have been skyrocketing in recent years. Depending on where you live, the prices in your area could be much higher than you anticipated.

It's important not to stretch too far to buy your dream home if you find yourself surprised by the costs of properties for sale. Either wait a little longer to buy so you can save more or scale down your expectations rather than bust your budget.

ALSO READ: Average House Price by State in 2022

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A yard sign that says Sold With Multiple Offers.

2. You may not get your first offer accepted

Once you've made an offer on a property, you may assume you're well on your way to ownership. But that's not necessarily the case. It's common for sellers to come back with a counteroffer. Or you may simply be outbid and lose out on the property altogether.

Remember, this is just a normal part of the homebuying process, and another property will come along.

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Piggy bank on a calculator.

3. You'll likely have to make a deposit when you make an offer

When you make an offer, sellers want to know you are serious. As a result, you'll usually need to include a clause specifying you'll make a deposit when your offer is accepted.

This money will be kept in escrow until closing day -- and if you back out of the contract without justification after your offer is accepted, you could lose it. So be prepared to have this cash up front when you're ready to move forward with homeownership.

ALSO READ: What Happens if You Back Out of a Home Sale After Making an Earnest Money Deposit?

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A person hands house keys to another person at a real estate closing.

4. Closing costs can add up to thousands of dollars

On the day of closing, you will have to pay up-front fees. These are for things like title insurance and mortgage origination fees. Your closing costs could equal between 2% and 5% of the amount you're borrowing, which is a big sum of money.

Although it's sometimes possible to borrow for closing costs, doing this can make getting a loan more difficult and expensive, so aim to save for them if you can.

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Stacks of change sit near a small model house as a person writes in a notebook in the background.

5. Mortgage pre-approval can be a long process

Most sellers want proof of pre-approval when you submit an offer. Getting pre-approved is also a good idea for homebuyers because you'll know how much you can borrow and what the loan costs will be. It can take time to get pre-approved, though.

It may be several weeks before you go through the process. Many people don't expect this, so be sure you aren't caught off guard. Submit your information as early as you can to your lender so you are ready when it comes time to start looking for a property.

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A house key lying on top of a mortgage loan application and agreement forms.

6. Pre-approval doesn't necessarily guarantee you'll always get a loan

Pre-approval is a good way to get an idea of what you can borrow and what your mortgage costs will be. And it greatly shortens and simplifies the process of getting final approval for your home loan.

But it's not an iron-clad guarantee you will definitely get a loan. If your financial situation changes before final approval or if your bank doesn't think the home appraises for enough, you may not be able to get the loan after all.

ALSO READ: Mortgage Pre-Approval vs. Pre-Qualification: What's the Difference?

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Two people in kitchen looking at laptop.

7. Your mortgage lender may approve you for more than you should spend

Mortgage lenders look at your financial credentials and decide how much you can borrow. But this could be more debt than you should take on, depending on your financial goals and future plans.

For example, a lender may not know you're also hoping for early retirement or that you plan to quit work in a few years to stay home with your kids. Rather than letting the bank tell you how much your maximum loan amount should be, take the time to work this out for yourself.

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Sack with the words Down Payment written on it and surrounded by coins.

8. You don't necessarily need a 20% down payment

Most mortgage lenders will require you to make a down payment rather than borrowing 100% of the cost of the property. But while you traditionally had to put 20% down, some lenders now accept as little as 3%.

Although you don't have to put 20% down, not doing so will mean you have to pay for private mortgage insurance (PMI). That's an added cost for insurance to protect the lender from losing money in case of foreclosure.

Be sure to think carefully about what size your down payment should be. While saving for it can be a hardship, a larger down payment does mean lower borrowing costs over time.

ALSO READ: How to Buy a House With No Down Payment

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Image of a home inspection report.

9. Home inspections almost always reveal some issues

Unless you are buying a brand-new home, you can expect that at least some issues will crop up during the pre-sale inspection. What you do when this happens is up to you.

If major issues arise, you can walk away -- or ask the seller to fix them or give you credit so you can. With more minor issues, the seller may not be willing to budge on the price, so you may have to accept them or walk away.

Be sure you include an inspection contingency in your offer so if big problems do show up, you have options and won't have to follow through with the purchase if you don't want to.

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Building inspector checking exterior of building being sold.

10. Your home may appraise for less than you offered for it

Mortgage lenders generally require an appraisal as a condition of loaning money for a home. Sometimes, your home's professional valuation may not come in as expected. In fact, the appraised value may be lower than what you offered to pay.

If that happens, you may need to bring more money to the table because your lender won't loan you more than a set percentage of what your home is worth. Or you may need to renegotiate your offer or walk away.

Be sure you have an appraisal contingency in your offer as well so that you aren't forced to complete a sale when an appraisal comes in too low.

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Blocks spelling out HOA with model houses on top of them.

11. You may have to pay an HOA transfer fee

Some neighborhoods have homeowners associations (HOAs). If yours does, you may have to pay an up-front fee to the association when you buy a property. This fee can sometimes be quite high, especially in neighborhoods with lots of amenities.

Be sure you understand this fee up front so you can be prepared with the funds.

ALSO READ: What is a Homeowners Association?

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A bank teller smiles at a customer.

12. Your mortgage lender may require you to put a lot of money in escrow

Many mortgage lenders require you to pay property taxes and insurance costs into an escrow account with each mortgage payment. The lender collects this money and then pays the bills for you.

It's common for lenders to require you to deposit a few months of these payments into an escrow account at closing. So this could mean coming up with hundreds or even thousands of dollars up front to fund this account.

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A pair of glasses and a magnifying glass atop a document that says Insurance Policy.

13. You'll need proof of home insurance when you buy

Lenders require you to buy a certain amount of homeowners insurance coverage. This is to protect their collateral. You'll have to find an insurance company and get a policy in place before you can close on your loan. It's helpful to start shopping early to be sure you get the right coverage.

ALSO READ: Understanding Homeowners Insurance Premiums

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Two people shaking hands over a document, a model home, and house keys.

14. Your lender might sell your mortgage

After you spend time shopping for the perfect mortgage, it may be surprising to learn that your lender could sell the loan. This is very common, and while the loan terms can't change, you could end up dealing with making payments to a different lender.

Because of this, it's not worth spending a lot of time worrying about the customer service reputation of your initial loan issuer since you probably won't stay with them anyway.

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A pile of square pieces of paper with an interest rate written on each and one in the middle with a question mark on it.

15. Your monthly payment can still change, even with a fixed-rate payment

Most people are better off getting a fixed-rate mortgage because it means your interest payment and total repayment costs cannot change. But your monthly payment can still change, even if you get a fixed-rate loan.

If your lender requires you to make property tax and insurance payments into an escrow account and these payments go up, you could get stuck with higher monthly costs. Be sure to leave a little wiggle room in your budget in case you're faced with this unpleasant surprise.

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Family standing in front of a house with a Sold sign in the yard.

Don't let these homebuying surprises shock you

Now you're prepared for some of the biggest shocks homebuyers face. Make sure you get your finances in order and make informed choices throughout the process, maximizing the chances your purchase is successful.

The Motley Fool has a disclosure policy.

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