It’s not just the sale price you’ll be paying when you buy a home. From closing costs, appraisal fee’s home inspections, taxes, and more; you better prepare!
Given all these unexpected costs, most buyers are confused when it comes to knowing what they’ll owe. That’s why we’re here to help by outlining some of the most common fees associated with closing.
If you’re buying a new home, you will need to pay closing costs. Closing costs are the fees required to finalize a mortgage and are typically paid by the buyer. Lenders are required to outline closing costs in the loan estimate received when initially applying. Therefore, it’s best to be asking questions prior to signing on with a lender.
Typically, this cost is anywhere from 2% to 5% of the loan amount. The most cost-effective way to cover this fee is to pay it out of pocket to avoid interest. But some may opt to finance it by folding it into a loan (if the lender allows).
Some states also offer low-interest loan programs and grants specifically designed to help first-time buyers with these costs. So, consider speaking with a professional, or researching local laws to see what your best option would be.
An appraisal of the property may also be needed. This is done simply so the lender can confirm the price of the property. They will need to do this to confirm that the property is worth as much as the amount you want to borrow. That way, if there is a default on the loan, they will be able to recoup any lost earnings.
Having an accurate appraisal completed also helps the buyer because it ensures they borrow the correct amount.
Most lenders will also require a home inspection on the property. This is especially true for government-backed mortgages (like FHA loans). The reason for completing a home inspection is that the bank wants to ensure that the home is structurally sound, and in good shape to live in.
During the process, a professional will carefully analyze the property to determine if there are any current or potential issues. Based on this assessment, you may be able to negotiate a lower sale price if issues are found.
If there are issues that are severe, you may even have the option to back out of the contract if both parties can’t come to an agreement.
The application fee is another cost associated with buying a home. The application fee covers the cost of processing your request for a new loan. Meaning, it covers things such as credit checks and the administrative expenses associated with them.
Note that the application fee varies depending on the lender and the amount of work it takes to process the application. Therefore, it’s best to discuss with your lender directly what the cost will be for you.
Depending on where you live, you might also be on the hook for an attorney fee. That’s because some states require a real estate attorney to be present at the closing of a purchase. This cost can be further impacted by the number of hours the attorney worked.
Upfront Mortgage Insurance
You might also be asked to pay the first year’s mortgage insurance premium upfront. Or a lump-sum payment that covers the life of the loan.
But this fee is dependent on the lender’s criteria. If it is determined that a buyer will need to pay, they expect anywhere from 0.55% to 2.25% of the purchase price for it.
However, this is strictly dependent on the lender. That’s why it’s best to speak with them directly for a personalized assessment into what fee’s you’ll owe.
Lenders also typically require buyers to purchase homeowner’s insurance before moving into the property. This type of insurance is meant to recover costs in the event of damage, vandalism, fire, etc.
It’s also good to note that the cost of insurance and the type you’ll need varies. These premiums differ based on a number of factors including the type of property, its location, cost, age, etc.
In addition to homeowner’s insurance, buyers should also consider purchasing title insurance. This type of insurance is needed to protect yourself in case title problems or claims are made on your home after closing.
Depending on the state, some sellers may be required to pay this fee. But if your area is exempt, you should be prepared to pay about 0.5% to 1% of the purchase price, according to the American Land Title Association.
Ultimately, we understand how daunting all these fees can seem which is why we’re here to help. We offer personalized service and advice that can help you have a successful sale.
For more information on how we can help, call us at 610 -549-4129 or email us at firstname.lastname@example.org today.