5 Unexpected Closing Costs and How to Budget for Them

Buying a home is expensive. First, there’s the down payment, which can amount to tens of thousands of dollars. Then there are the closing costs, which are the administrative and legal costs you need to pay when you buy a home.

Closing costs are usually referred to as a lump sum of money. But in reality, closing costs are dozens of small charges that can add up to thousands of dollars.

While a few minutes spent researching on the internet will offer up the most obvious closing costs like land transfer taxes, lawyer’s fees, and home inspection fees, there are many more that are easy to overlook.

Here are five unexpected closing costs, and how to budget for them:

1. Prepaid property taxes

When you buy a home, you have to pay property taxes to your municipality for services like the police and fire departments or libraries. If the seller has prepaid their property taxes beyond the purchase date, you’re required to reimburse them for a portion of those taxes.

For example, if the sellers paid the full $2,400 in property taxes for the year and the home purchase closes on June 30, you’re required to reimburse them for half ($1,200) of the property taxes they already paid.

Your real estate lawyer will sort out if you owe prepaid property taxes.

2. Purchasing additional items from seller

When submitting an offer to purchase a home, your real estate agent will also include a list of chattels to be included in the acquisition. Chattels are moveable objects that’ll remain with the home, such as large appliances and window coverings.

Sometimes after the offer to purchase has been accepted and the sale is firm, the seller will decide to leave behind some of their furniture instead of moving it to their new home. The seller will often give the buyer the first option to purchase it before trying to sell the items.

For example, your offer to purchase may include standard appliances, but the seller then offers to sell you their deep freezer or dining table. A belated offer to purchase extra chattels happened to me, and I spent $350 buying several items from the seller.

3. Internet, water, and power setup fees

You should schedule utility hookups to coincide with your closing date. Arranging for power, water, and internet service will usually require a one-time setup fee ranging from $50 to $100 per service. If you’re opening a new account, you may need to pay a deposit or consent to have your credit score pulled.

4. Unexpected relocation costs

Whether you’re hiring movers or renting a van or truck, moving is about more than just the physical act of moving boxes and furniture from one home to another. You’ll also be living in a partially packed up, or unpacked, and at home for several days, which can take a toll on an individual.

Cooking will be the last thing you’ll want to do when you’re knee-deep in boxes, so be prepared for these few weeks in limbo and set aside extra money for takeout.

5. Replacing locks

The most exciting part of buying a home is receiving the keys on your closing day.

But those keys could pose a security risk. You should ask yourself, are these the only keys to my home? Did the seller give keys to caregivers, neighbours, or relatives? Even if the answer is no, you should still consider replacing or rekeying the locks to your new home.

A locksmith should be able to rekey the locks on newer doors in just a few minutes. On old doors, the locks need to be replaced, which can take several hours. Either way, set aside a few hundred dollars for this procedure.

How to budget for unexpected closing costs

More than a dozen closing costs will come up from the time you submit your offer to purchase to when you move in. With that many to keep track of, it may seem impossible to remember to budget for every single one. Fortunately, there’s a rule of thumb that takes the guesswork out of budgeting for closing costs.

You should save 4% of your home’s purchase price. For example, if you buy a home for $450,000, you should save $18,000 for closing costs. By setting aside this money in advance, you’ll have the required funds to pay for all of your closing costs, even the unexpected ones.