It’s common knowledge that buying a home comes with a whole host of varying costs. From calculating your down payment to funding dreamy home renovations, purchasing a home can quickly dwindle your financial savings.
Aside from common one-time payments, there are several fees every home buyer should be aware of when beginning their home buying process.
Read this post to learn about the upfront and recurring fees you should consider when purchasing a home to prepare yourself financially.
The most common fees related to the home purchasing process are those applied during closing. Closing cost fees are payments you make to your lender to process your home purchase.
The total closing costs you’ll pay depend on a variety of factors. Factors like the state you live in, the loan type, and the loan amount all affect the closing cost fees you will be responsible for paying.
Check out following ClosingCorp to see a breakdown of average closing costs by state.
Closing costs consist of several one-time, upfront payments, including:
Application fees will vary by lender and loan type. Often these fees will be used as a deposit and later applied to other costs down the road. Because some application fees are non-refundable, even if your loan application is denied, make sure you ask your lender their rules.
Third-party appraisal companies determine the property’s actual worth and send a formal approval document to your lender confirming the amount the lender is able to loan you. Depending on your state, appraisal costs can cost upwards of $600.
Some states require a separate home inspection, distinct from a home appraisal. A home inspection confirms your home is structurally safe and free from any major damage. Expect to pay up to $500 for a home inspection, depending on your home’s size and location.
Running a credit report is one of the first things your lender will do to determine the loan amount and interest rate that will work best for your current situation. While some lenders will charge you separately for this hard inquiry, others will cover the cost as part of the lending process. If you are responsible for paying the fee for this report, you can expect to pay up to $50 per report.
Some states require home buyers to pay an attorney to prepare the documents needed to close on your home and transfer the title to your name. You may also be responsible for paying the cost of transporting any mortgage paperwork, sometimes known as courier fees.
Additionally, you will be required to pay a title recording fee to your local municipal agency to ensure the public land ownership records reflect the change in title ownership of the home.
Because these requirements and fees vary drastically from state to state, your best bet is to ask your realtor or lender how much you should expect to pay.
While attorneys, couriers, and government employees work on several aspects of your closing paperwork, your lender will be hard at work processing and underwriting your loan. You are responsible for paying the loan origination fees that cover the time and work your lender has put in on these documents. Most lenders charge around 1% of the loan’s value for origination fees, but we recommend you ask your lender to confirm the charge.
Title fees cover both you and your lender in certain situations. Lender’s title insurance ensures the bank will still receive a payment if you lose your home. This fee is obligatory at closing and can cost around $1,000.
Owner’s title insurance covers you if someone sues you, if you cannot pay for your property, or a title lien remains uncovered. This insurance is totally optional but can cost you upwards of 1% of your property’s value.
There are several taxes you’ll be responsible for paying at the time of closing on your property, including:
Now you know the one-time fees you may owe when closing on your new home purchase. The next step before you start your home buying process is calculating the recurring homeownership fees you may be responsible for paying on an annual or monthly basis.
Your principal and interest rates are determined based on the original loan amount borrowed. Depending on the home mortgage type, the payments may be divided into monthly payments. As you begin to pay off your principal amount, your monthly interest amount will also decline.
Ask your lender to break down these costs as your purchase price, down payment, loan type, and APR will determine your monthly payment.
Every state has a minimum property tax structure as determined by the local government. These taxes are typically collected annually, but some states allow divided payments made several times throughout the year.
Look up your local government and state property tax rate before starting your home purchasing journey.
Depending on the property type you’re interested in buying, you may be responsible for paying Home Owners Association or HOA fees. These monthly fees are collected to help pay for maintenance and repairs of common areas and buildings in your neighborhood and community.
HOA fees can vary depending on property type and state. Ask your realtor for a copy of the HOA bylaws that may be applicable to the home you’re interested in buying to determine if you can adequately cover any related fees.
While some homes are considered turn-key and require very few upgrades, it’s likely you will need to consider repairs and maintenance fees in your monthly calculations. Landscape upkeep, safety upgrades, and property repairs can quickly drain your savings. Be realistic with your expectations!
Once you’ve calculated these fees, you should have a better sense of how much money you’ll need for upfront closing costs and recurring payments associated with purchasing your new home.
If you’re feeling overwhelmed with the calculations or the overall lending process, we’re here to simplify the home buying process and guide you through this important time in your life.