Important Closing Costs And Fees To Consider When Buying A House
As any homeowner can tell you, buying a house is not cheap. However, many prospective homebuyers get so wrapped up on the total selling price of the house that they do not focus on the other important costs and fees associated with purchasing a home. This is a mistake. Neglecting these costs and fees could leave you unprepared to purchase your dream house. Research the following expenses ahead of time and you will not be surprised by the final price tag of your new home.
This will likely be the largest upfront cost that you will have to pay when purchasing a home. The actual amount of the down payment that you will have to pay will depend on your lender. The typical down payment size is five to ten percent of the total sale price. If you have a government insured mortgage, you may be able to pay less. Be aware that some lenders require as much as 20 percent of the total home price for a down payment. Make sure that you have plenty of money saved up in order to cover the costs of the down payment.
These are the various costs associated with finalizing your home purchase. When added up, these expenses can run into the thousands of dollars. Keep in mind that different lenders require different fees for closing costs. Therefore, it’s always a good idea to shop around. Common closing costs include:
- Appraisal Fees: Many lenders require a property appraisal before a home is sold in order to make sure that the true value of the home is equal to or less than the sale price of the home. This requires hiring a professional appraiser. The homebuyer is generally expected to pay for the cost of this appraisal. However, you may be able to negotiate this cost away.
- Attorney Fees: When you purchase a house, you generally are expected to sign contracts. Since those contracts need to be prepared by lawyers, there will be legal fees. As the buyer, you can expect to pay a portion or all of the contract fees.
- Home Inspection Fees: Many lenders require a home inspection be done by a professional inspector before the sale is finalized. The purpose of these inspections is to make sure the home is in good condition and warn you about any possible red flags. Some lenders also require that you have an inspector look for termites and vermin. The buyer is generally expected to pay for any required inspection fees. The good news is that if the inspector finds anything fishy, you can usually back out of the deal.
- Mortgage Application Processing Fees: This is basically a fee that lenders charge for looking at and processing your mortgage application.
- Recording Fees: Recording fees are charged by a municipal entity to create an official record that a change of home ownership has occurred. This is basically a fee for putting your name on the deed of the house.
Property taxes are another hefty expense that prospective home buyers need to take into account. The amount you have to pay will depend on the value of your home and where you live. Keep in mind that property taxes are a recurring expense that you will have to pay every year that you inhabit the home.
Note that in some cases, you may be required to prepay some of your property taxes when you close the deal on your home. Make sure to ask about this before you sign any papers.
Maintenance And Utility Costs
Do not underestimate the costs of maintenance and utilities. Many people who have previously rented do not realize that maintaining and powering a home is much more expensive than maintaining and powering an apartment.
Most mortgage lenders will require you to purchase homeowners insurance. This can cost up to several thousand dollars a year and is an ongoing expense.
Private Mortgage Insurance
If your down payment is less than 20 percent of the value of the home, you will probably have to pay for private mortgage insurance. This gives your lender added protection if you fail to make a mortgage payment. The cost of this is usually tied in with your mortgage payment. (For more information about PMI, see Understanding The Cost Of Private Mortgage Insurance.)
Many people buying a new home forget to factor in the costs associated with moving. If you are moving across states or have a lot of personal belongings, your moving costs can be substantial. Make sure to plan for these costs before you sign your mortgage papers.
The bottom line is that purchasing a home is expensive. Don’t get blindsided by failing to take into account the numerous expenses just discussed. Doing your homework ahead of time will ensure that you are fully prepared for your home purchase.