Understand Costs Prior to Home Buying
When making a lifelong financial commitment in purchasing a home, you need to be well aware of all the costs to home buying. A new property is a huge investment that will not only shape your financial situation, but also the way in which you live. Here, we list the major costs that you can expect before the actual purchase of the new house. While some of these seem minor, they add up. It’s best to prepare yourself so you are ready to find your dream house.
Down Payment
This is the biggest expense that you will have to take care of when closing your loan. There are some loans that will require no money down, such as VA and USDA loans. However, apart from these, you will usually have to pay a down payment of anywhere between 3% to 3.5% depending on which loan you choose. The former percentage is for conventional loans and the latter for FHA loans. So if you’re buying a house worth $200,000, you’ll have to pay a down payment of $6,000 to $7,000.
Underwriting, Application Fees, and Lender-Based Origination
The lender may opt to charge you an application fee and underwriting fee to process your initial request and to access your credit score. The origination fee is payable to the lender or the bank as a service charge for processing your loan. Typically, the origination fee is about 1% of the loan amount. Some lenders may not have an origination fee but most likely they will charge you to process the loan in one way or another. Ask your lender about these fees before applying for a mortgage.
Title-Based Fees
There are a few other fees that you will have to pay for the title of the house. These may include:
- title settlement
- title search
- title insurance
- title insurance binder
You can, however, negotiate to lower these rates by shopping around and checking out various options. You’re expected to buy the lender’s title insurance as part of the loan. However, the title insurance for yourself is always optional. This is necessary to keep peace of mind that you won’t have any problems in claiming ownership of the house.
Appraisal and Survey Fees
You pay an appraisal fee to justify the money the lender is lending you for your house. This fee is around $300 to $400 and needs to be paid upfront. You’ll be charged a survey fee to obtain a previous survey of the property. This will ensure the boundaries of your house as well as the neighboring properties if any. This fee can be up to $500, but can be lowered down with persuasive negotiation.
Homeowner’s Insurance, Interest, and Prepaid Property Taxes
You will have to take into account homeowner’s insurance and property taxes. As far as the insurance goes, you will be expected to pay at least 12 months of insurance. The taxes can, however, be shortened to half a year, that is 6 months. You will also be required to pay insurance for the house loan you took for each remaining day of the month.
State Recording Fees
Every state has a different law regarding the transfer and recording of the information regarding the sale of your house with your county register of deeds. You may be required to pay the fee for recording and holding the information of the property owner. You may also be required to pay a transfer fee from one owner to the other if you’re buying from another homeowner.
Inspections
If you’re buying a new house, expect that you will pay for inspections prior to the final sale. A comprehensive inspection costs about $400 on an average 2,000-square-foot home. You may want to consider other inspections. There may not be any mold or pest infestation that will have to be taken care of. But in case you’re buying an older house, it will be required to pay for mold and pest inspection. This cost can start from $50 and go anywhere up till $300. These costs will vary by location though.
Agent Commissions
If you buy your new home through a real estate agent, there may be an additional commission charge that you will have to pay. This commission is usually the responsibility of the seller, but in some rare cases, the buyers have to pay the commission charge as well. It is crucial to understand how the agents structure their commission before you go and sign any contract. These costs are usually 3-6% for every agent, so make sure you know what that is to avoid any unpleasant surprises.
Final Word
There are so many factors and costs that need to be taken into account before you make the big purchase. Now you know what to expect prior to your home closing. Making this investment is life-changing but with some planning, you’ll be enjoying your new home soon.