Buying a house can be a very daunting process! Educating yourself on a few fees and terms before you start might help you save some money and a few shocking surprises along the way. A Well planned process makes for an easier process…for everyone! It’s best to have an extra $ 2,000 cash (depending the area you live in) going into the process for upfront fees/charges.
- Fees when buying a house:
o 1. Home inspection fee- Is optional but We Highly recommend getting one. You can choose your inspector and pay them directly. Inspection will confirm that the house is livable and structurally sound before you buy, averaging $ 200 to $ 500.
o 2. Appraisal fees- Appraisals must be done by an objective third party and incur a fee averaging between $500 and up depending on property specifics. The appraisal usually happens after an offer has been made and the home has been inspected. In the event the appraiser requires repairs there could be a re-inspection fee.
o 3. Earnest Money- Earnest money is money that you put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price. It’s also important to note that If your offer is accepted, the earnest money becomes part of your down payment or closing costs. Contracts vary and you will want to review the contract for details regarding who gets the earnest money in the event the contract fails to be finalized.
o 4. Credit report fee- Lenders will pull your credit reports (a HARD PULL) and use their own risk-analysis models to determine your creditworthiness.
o 5. Document preparation fee- It costs your lender time and money to provide you a loan estimate. This fee typically covers administrative and other costs for your loan.
o 6. HOA fees- HOA stands for homeowners’ association. Some communities, especially those with condos and town houses, require you to join a homeowners’ association, which helps pay for upkeep on common areas and the buildings. They have their own set of rules as to what you can have and what is not allowed. I would strongly read them thoroughly before purchasing the home.
o 7. Loan origination fee/ Mortgage points- The loan origination fee is probably the largest single closing cost you’ll encounter, as it’s the primary way lenders make money. Lenders typically charge 1% of the total loan amount for the origination fee.
“Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. Typically, 1 point costs 1% of your mortgage amount (or $1,000 for every $ 100,000) which is depends on the current rates set by the secondary market for your loan program.
o 8. Title fees and Title Insurance - The title will need to be transferred from the seller to the buyer and you will have to pay your local recording office to record the real estate purchase so that it becomes a matter of public record. It might be required to purchase lender’s title insurance, which protects the amount they lend. You may also want to buy owner’s title insurance, which is meant to help protect your financial investment in the home.
o 9. Private mortgage insurance- If your down payment is less than 20% of your home’s purchase price, you might be required to get private mortgage insurance, which is meant to protect the lender in case you stop making payments on your loan. This is usually a recurring fee, but you may be able to cancel it after you’ve paid off more than 20% of your home, depending on the type of loan.
o 10. Taxes- Buyers often prepay at least two months’ worth of county and city property taxes at closing. Each lender requirements are different so the amount of prepaid months will vary. Property taxes are usually paid in advance, so the buyer may need to reimburse the seller. Also might have to pay transfer tax, which the government imposes on the passing of title to property.
o 11. Termite inspection- The mortgage lender may require an inspection for the loan approval, However it’s a great idea to have it done anyway. This fee is typically a cost to the seller.
Fees to watch out for other than fees higher than average from above list is ““Junk” or “garbage” fees are excessive fees tacked onto your mortgage. Make sure you read all fees and inquire if they seem excessive or out of place like application fee or mortgage rate lock fee. For down payment assistance programs you will see origination fee, an admin fee, a processing fee, and an underwriting fee which is basically the document preparation fee broken out. Unfortunately, there is no such thing as “no-cost loan”. The cost would typically be added into the loan amount or increased interest rate.
It’s best to ask questions on every step of the way from the pre-approval process to contract terms. If you are having any question about a fee or about the buying process please give us a call and if we don’t know the answer we have an expert in our corner that does!Posted by Reedy Daly and Stace Bohlender on