A house’s price and interest rate are the two numbers homebuyers focus on the most. However, there are many other fees and costs associated with buying a house. Planning for additional expenses outside of the price of a home is crucial for maintaining your budget. Understanding the various costs associated with buying a home can prepare you for the true price tag of your house and help you avoid any surprises.
Earnest Money & Down Payment
If you find a property you want to purchase, you may put down earnest money. This upfront fee is used as a deposit for the house and kept in escrow until you complete your purchase of the home. Earnest money is often put towards fees associated with closing costs or the down payment for a property. If the sale falls through, you may get your earnest money back.
For many home buyers, the down payment is an anticipated expense. At closing, you pay for a percentage of the total cost of the house. Your down payment will depend on the requirements for your loan. The typical minimum down payment is 3% and the average is around 20%.
When you close on your new home, you will find yourself paying a wide range of fees. These closing costs go to the seller of the property, your agent or broker, the state, and other parties. Within a few days of your closing date, you should receive a copy of your closing disclosure. This document will detail all of the fees and expenses you owe at closing.
Loan or Bank Fees
Your bank or lender may require an origination fee for creating your loan. An underwriting fee or application fee may also be charged by your bank depending on your loan. You may also have the option to pay discount points. Typically costing about 1% of your loan, discount points can be used to decrease your interest rate or lower your monthly payment. At closing, you pay discount points to your lender.
Closing costs also include title fees like title search, settlement, insurance binder, and insurance. These fees can be paid at closing or added to your total loan. In some cases, your lender may require lender’s title insurance. This type of insurance helps protect your lender in case of an issue related to your home’s title.
Home Appraisal & Survey Fees
For some homebuyers, a survey of the land already exists. If that is not the case, you will have to pay for a new survey. Survey fees can vary, so examine your options for the best value. Your lender will also require an appraisal. The fee for an appraisal is due upfront and ranges in cost.
Some states require fees for recording information of the sale of a home. You may also be required to pay transfer tax, charged when a property is transferred to a new owner. Research the fees associated with buying a home for your state or ask your real estate agent for a breakdown of state fees.
At closing, you are responsible for paying the remaining property taxes on your home due for the rest of the year. In most cases, the current owner of the property has already paid for the entire year’s worth of property taxes. Your fees at closing act as a prorated share for the remainder of the year from the date of closing.
A home inspection may not be required by your lender, but it is still a good idea. Home inspections cost $300-$400 on average and completely evaluate the state of a property. From the roof to the foundation, you can get a clear picture of any repairs that will be needed. Paying for a home inspection upfront can save you from a major headache later on.
At or before closing, you will likely be required to pay a year’s worth of homeowner’s insurance fees. Your lender may require these fees before closing as part of an escrow account, or you may be able to lower your insurance premium by paying in advance.
Real Estate Agent Commissions
If you use a real estate agent or broker to facilitate the purchase of your home, you will likely owe them a commission at closing. In many cases, the seller is responsible for paying the commissions for all agents involved. However, there are some times when the buyer has to pay their own commission fees. Before signing with an agent, ask for a clear breakdown of their commission structure.
Properties located within a home owners’ association will likely have fees due at or immediately following closing. HOA dues, processing fees, and transfer fees are common for new homeowners within HOAs. You can contact the HOA or work with your real estate agent to determine the total fees due before closing.
Finally, be sure to factor in the cost of any repairs that have to take place before you can move in. If your inspection uncovered work that needs to be done, you will have to budget for the cost of repairs as well as living arrangements until you can occupy your new home.