What makes Christmas and New Year’s better than friends, family, and savings? How about owning a home? The holiday season is a cheerful time spent with family, but for those of us with families
How To Avoid Shock At Closing When Buying A Home
First time homebuyers often think the sale price of a listed home is the only cost associated with the purchase. However, many additional fees are associating with the real estate purchasing process and owning a home. The best way to avoid shock at closing when buying a home is to have an idea of the costs involved.
First, let’s outline the five most common fees associated with buying a house. These are standard expenses that no homebuyer can escape:
A Down Payment: While there are programs for first time buyers that can reduce or exclude this cost, the smart buyer will always put something down. On average, down payment costs run around 3.5 to 5 percent of the sale price.
Home Inspection: Although an optional fee, you would be insane not to purchase a home inspection prior to closing. Price varies, but the point is to have a professional inspector examine the property with a fine tooth comb. It’s the best way to determine whether a property is worthy of your monetary investment.
Closing Costs: Often the second largest out-of-pocket expense for a homebuyer, closing costs can cause the most sticker shock. We’ll discuss them in greater detail below.
Earnest Money: While not necessarily a fee, earnest money is something to be aware of because you will need the funds ready when putting in a contract on a home. Essentially, earnest money is a buyer’s proof that they are serious about purchasing the home.
Moving Expenses: You can’t escape moving costs, even if you can borrow a friend’s truck or van. You still have to take into consideration the cost of packing and moving, whether you do it yourself or use a professional company.
Mortgage Loan and Closing Fees
Most buyers don’t pay cash; they use a mortgage. Mortgage loan and closing fees are the expenses involved in a home loan.
Application Fee: Most lenders charge a fee to process your home loan application. The fee can be structured in any number of ways, but it will most likely be an out-of-pocket expense you are responsible for covering.
Credit Reporting Fee: Some lenders will charge a fee for checking your credit report.
Property Appraisal: The lender will require a property appraisal to ensure the property they are lending money on is worth the price you agree to pay. A professional appraiser will analyze the property and determine whether it is priced at a fair market value. The appraiser’s fee is usually passed to the homebuyer.
Property Survey: The property you are purchasing will require a survey. The survey verifies the physical specifics of the property and the specific items included on the land. Most lenders will accept a previous survey, but if none exists, the cost of a property survey will usually fall to the homebuyer.
Loan Origination Fee: Usually the largest fee on the home loan side, a loan origination fee is the price you pay the lender to generate your home loan.
Private Mortgage Insurance: PMI, or private mortgage insurance, is a fee charged to protect the lender’s interests. It’s common for PMI to be dropped once a homebuyer’s loan amount becomes less than 80 percent of the home’s fair market value. Until then, it is charged as a monthly fee in addition to the mortgage.
Title Company Fees
Title company expenses will vary state to state. Whether the buyer or seller covers them is negotiable. In most cases, these fees can include:
A title search
Owner’s title policy
Mortgage title policy
Since the responsibility of these fees can vary per transaction, it’s important to discuss them with your real estate agent. Before bidding on a home, have a good idea of which fees you can afford and which need to be covered by the buyer. The negotiation process may involve an overall increase in the sale price, which will directly affect your monthly mortgage payments. Since these fees can be covered by either the buyer or seller, homebuyers sometimes have more wiggle room for offloading fees and lower the overall cost of their real estate transaction.
The final price tag isn’t the only cost to consider. As a homeowner, you will be responsible for all of the fees associated with owning your own home. Ensure your mortgage is affordable by being aware of homeownership expenses before closing:
Home owner’s insurance
Home owner’s association dues
Property maintenance and repairs
Appliances and fixtures (if missing)
Property updates and remodels (if needed)
Lawn service and landscaping
Armed with the knowledge of the fees incurred with closing, you can be prepared for that final price tag. Fees will vary from state to state and deal to deal, but you can work with your real estate agent to arrive at the best closing price tag for you.
Having lived in other cities, such as Cleveland and Idaho Falls, I only appreciate Hampton Roads that much more. Why? Because from almost anywhere in our area, a beach is only about a 20 minute dri....