When buying a home, most people only think of the listing price and interest rate for a home loan. However, more fees and expenses need to be considered when buying a home.
Fees that need to be paid upfront and fees that will later be merged into your mortgage payment can mount up and surprise you if you’re unaware of fees associated with buying a home. Below, is a list of fees that are required in the home buying process.
Appraisal Costs
In order to figure the current fair market value of your home (for taxes), you’ll need an appraisal done before buying a home. The home appraisal justifies the price of the property based on “comps” or comparable sale prices of homes in the area. Lenders require an appraisal to ensure that the home is worth the money you wish to borrow. You must pay the lender before the appraisal can be performed.
Escrow Fees
The escrow account is a holding place for fees while the real estate transaction is being finalized. A portion of your mortgage payment along with property taxes and insurance will be included in the escrow fees. In other words, you’re prepaying part of the taxes and homeowner’s insurance ahead of time.
Property Tax
Which brings to mind the annual property tax owed on the home… Every year, you’ll receive a bill from the county stating how much property tax is owed. Sometimes, you’ll owe property taxes right away if the seller already paid taxes for the time you’ll be owner. Other property-related taxes include municipal fees for water and sewer. Most of these are handled at closing.
Survey CostsA surveyor must create a map showing the boundaries of the property’s lot. Sometimes an existing survey can be used. Otherwise, a new survey will need to be purchased. |
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Inspection Costs
If you’re purchasing an older home, then an inspection for mold and pests is required. This can end up costing you around $300 or more.
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PMIPMI stands for “private mortgage insurance.” If you plan to pay less than 20 percent for a down payment on a home, you’ll have to buy private mortgage insurance. PMI protects the mortgage lenders from losing their money should the borrower default on the home loan. You can pay PMI two ways: upfront PMI premium or a monthly PMI premium. An upfront premium is paid at closing. The monthly PMI premium can make your mortgage payment higher, but some people prefer to pay PMI this way. It’s up to you which PMI type fits your budget and situation. |
Homeowners Insurance
This insurance is required when you take out a home loan. The homeowner’s insurance combines hazard insurance and personal liability insurance that covers the home and its contents such as an HVAC system for example. A lot of time, you’ll be required to pay a year’s worth of premiums before closing. Afterward, your premiums can be paid in the mortgage payment. Your buyer’s agent may be able to ask that the seller pay for homeowner’s insurance should the home show a need for future repairs. Ask your buyer’s agent about any fees or expenses that can be handled through negotiation. Remember, the buyer’s agent is your advocate in the home buying process.
Title Insurance
This insurance protects the lender should an unforeseen problem arise before closing. There could be a double mortgage or maybe a lien. Most of the time you must buy a lender’s title insurance which is included in the loan or closing costs. You can choose to buy title insurance for yourself, too, but this is not required.
No Commission When Buying a Home
Luckily, one fee you will NOT have to worry about when buying a home is the buyer’s agent commission. Home buyers do not pay real estate agent commission. The seller pays the buyer’s agent’s commission.
Hiring a buyer’s agent can bring you peace of mind when buying a home and it’s free. The agent can guide you through the complex legalities and explain the fees associated with the real estate buying process.