When beginning a home purchase, it’s recommended you bear in mind that various fees will be a big part of your costs. If you don’t, your budget will quickly get pushed over the limit. The best course of action is to consider the fees and costs listed here right from the start. Don’t forget to rely on the help and expertise of a real estate agent, lender, and insurance agent who can help you estimate the fees more accurately for your location and your purchasing ability.
The Costs of Buying a Home
When thinking about the costs of buying a home you need to consider an entire cast of characters involved in the process: the seller, at least one appraiser, an inspector, a mortgage lender, the representative of a title insurance company representative, and maybe a couple of more. Plus, there are ongoing costs for taxes, insurance, and maintenance.
It’s important to consider all of these so you could avoid paying junk fees. In Australia, the term “junk insurance” is used to denote additional insurance policies which are added to loans with the most common examples being consumer credit insurance and guaranteed asset protection (GAP) slipped in with the rest of the paperwork. In case this happens, don’t hesitate to claim an insurance refund for all the money you unintentionally pay for the rubbish warranty.
Mortgage Costs and Fees
When you budget for your new home, make sure you don’t omit the expenses linked to the mortgage itself. As silly as it may sound, you will pay money to borrow money, so in addition to paying off the mortgage itself, you’ll have to cover any administrative fees throughout the process.
Your first down payment is the biggest mortgage cost to be paid upfront. In most cases, it’s at least 3% of the purchase price. If you pay at least a 20% down payment, you’ll be able to reduce the cost of private mortgage insurance (PMI). Lenders will need to be paid for the expertise, capital invested, and paperwork, but they might also charge an application fee, origination fee, and a credit report fee, among other possible fees.
Lender-related fees can also include the service of property surveys or appraisals. The main reason these individuals are hired is to help the lender obtain independent verification proving to all parties the value of the property and its boundaries.
The process of closing a home purchase deal involves massive amounts of legal paperwork, which you’ll discover as soon as you sit down to sign it all and make it official. This may include an escrow fee, a separate “closing fee” that pays the closing agent for the time and work they invested in the closing process.
An additional accumulation of fees that are commonly charged at the point of closing includes title services, adding on up to $2,000, that cover a variety of items such as title search, title settlement, title insurance and recording fee. Lenders may offer recommendations for where to purchase title services, but you can also research yourself and potentially save more.
Ongoing Costs, Fees, and Taxes
Whereas closing typically includes the first months or years of various ongoing costs, you will also be charged additional ongoing fees once you become a homeowner. This includes local property taxes and premiums on a homeowner’s insurance policy. And, if your property is part of an HOA, you’ll have to pay dues, with the amount depending on what amenities there are.
Lenders can commonly make adjustments to your monthly payments to include estimated tax and insurance costs, with a slight modification later if your tax or insurance costs are estimated higher or lower than expected. This can incur fewer bills for you and can be advantageous if you want to lower and simplify your bills.
It may not be considered a fee or bill, but once you become a homeowner, you’ll be solely responsible for its upkeep and maintenance. As a form of protection against unexpected repairs down the road, many homeowners opt to deposit regular amounts into a separate savings account exclusively for maintenance and repair.
Other Possible Fees
Home inspections aren’t obligatory but come highly recommended. A general home inspection is useful as it can reveal information about the state of the property so you decide whether the deal is right for you. Having an expert’s evaluation of the home’s level of functionality and maintenance will help you make the final decision.
Depending on your lender but also on your state and municipality, you might encounter some additional fees so do not hesitate to ask for clarification if you spot an unfamiliar line item in your closing disclosure or loan estimate.
Purchasing a home can be a rewarding choice in the long run, since homes usually retain their value as times go by and even add to it. However, you should make sure you factor in all the upfront costs, ongoing payments, estimated fees, and maintenance expenses so you don’t end up choosing a house that is breaking your budget.