There are many costs and fees associated with buying a home in addition to the price tag of the house itself. Some of the hidden costs of buying a home are upfront and some occur monthly during the time that you own the home. Here are a few of the most common expenses and fees that you’ll see when purchasing your home.
There are a few upfront costs you can expect when you purchase a home. Here are a some you should prepare your wallet for before moving forward with the home buying process.
A down payment is a percentage of the total price of the home that you’re buying. They’re also the fee the majority buyers are most familiar with.
Down payments can start at as low as 3% of the total cost of the loan. If you want to avoid additional fees, like private mortgage insurance, you’ll want to put at least 20% down on the payment of your home.
Closing costs for a mortgage include all the expenses involved in the purchase of your property. Closing costs are typically 2% – 5% of the home’s total value. These costs can include the title search fee, home inspection fee, an escrow deposit and any relevant homeowners association (HOA) or additional insurance fees. Closing costs are typically out of pocket expenses. This means that you will be asked to pay for them upfront rather than through your loan.
The appraisal fee is required to be paid to a professional property appraisalcompany. This fee typically costs between $300 and $500. Your real estate agent may be able to recommend a local professional to do the appraisal. The appraiser’s job is to asses the home’s fair market value.
The value of your home as determined by the appraiser will be used to determine your loan-to-value ratio. The loan-to-value ratio helps lenders assess risk and determine the mortgage approval.
Credit Report Fee
Although not all lenders charge for the service, this is typically a $20 – $30 charge from a lender in exchange for them pulling your credit scores. Your creditworthiness is another factor when determining if you are approved for your mortgage.
The title search is a fee charged by the title company to analyze the property records to see if there are any ownership discrepancies. The cost for this is typically $75 to $100.
Home Inspection Fee
Home inspection fees are charged by a certified inspector to ensure that your property meets a variety of standards. Again, your real estate agent may be able to recommend a local professional that they trust. They’ll let you know if anything needs to be imminently fixed or if there’s damage that you may not be aware of. They may also check for pests, lead-based paint or flood damage.
Escrow is also known as earnest money. This is a fixed amount – typically 1% – 2% of the cost of the home. It’s set aside to protect all the parties involved in the purchase of your new home. This includes the seller, lender and you. Earnest money is set aside while all the parties complete their necessary tasks during the transaction process. Once all the conditions in the transaction are met and the transaction is finalized, the escrow money is released.
There are also several recurring costs you can expect when buying a home. Here are a few expenses you will encounter regularly.
Your mortgage payment will be the most predictable and sizeable monthly cost associated with buying your home. The mortgage payment is usually made up of the principal owed on the home, interest, taxes and insurance.
Most condos, apartments and some neighborhoods will have an HOA fee. HOA fees can vary greatly, but many cost between $200 – $500 per month. These fees usually include exterior maintenance, neighborhood amenities and some utilities such as trash pickup. You may want to look into what the HOA fees are for the community that you are buying in and what they cost before purchasing your home to avoid any surprises in the future. The cost and coverage of HOA’s can be very different from community to community.
Private Mortgage Insurance (PMI)
If you make a down payment on your home of less than 20%, you’ll have to pay private mortgage insurance (PMI). This fee can be up to 2% of the loan annually and protects the mortgage lender if you default on the loan.
PMI is common for first-time home buyers and stays in effect until the remaining principal balance on the mortgage falls below 80% of the home’s value. After you have paid off at least 20% of the home’s value, your lender should automatically cancel PMI charges.
Homeowners And Hazard Insurance
Homeowners insurance is required and, while built into your mortgage, it can cost $500 to $2,000 per year. Hazard insurance costs are determined by the risk factors in your area or that are unique to your home. Common location-based risks include floods and earthquakes. While common home-related risks are whether you have a swimming pool, if the home has a wood-burning stove, or even if you have certain breeds of pets.
Your state and county impose all property tax amounts. While the rates vary from area to area, your real estate agent should be able to provide you with information on how much you will pay in taxes each year before you purchase your home. The taxes you pay may go up over time depending on the local government’s ability to increase property taxes, if the value of your home increases or if the overall market changes.
Utilities are a monthly expense and will vary based on the size of your home and how much you use. Common utility expenses are gas, electric, water, sewage, trash removal, internet, cable and telephone services. Most homes can anticipate monthly utility bills of $200 to $400.
Real Estate Commission
While as a buyer you will not have to pay the real estate commission, it is still wise to be aware of this fee involved in the transaction. Commissions are typically 6% of the total selling price of the home and are split 50-50 between the buyer’s agent and seller’s agent.
The Bottom Line
There’s so much more to buying a home than affording a down payment. While there are several upfront and ongoing expenses, being aware of what your financial obligation will be is one of the first steps to becoming a successful homeowner.
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