When you’re looking for a new property, you’re prepared to spend hundreds of thousands of dollars. You’ll have to spend years of savings for a reasonable deposit in order to hold the key of your dream home.
However, buying a home isn’t just about paying the agreed upon sales price. In fact, there are a few hidden cost first-time buyers may not be aware of.
So, here are some of the cost associated when buying a home.
Appraisal
Your mortgage lender requires your property to be appraised before approving your loan. They need to determine the property is worth more than you’re borrowing.
The cost of appraisal can vary depending on the size and location of the home but you can expect to [ay somewhere between $300 and $500. Unique properties, larger homes, and remote locations generally cost more.
Many lenders allow you to pay for the appraisals at closing.
Home Inspection
Having a proper home inspection performed by a certified home inspector is a must. Your home inspector will check everything from the windows, roof, plumbing, and electrical systems to identify any issues.
A home inspection may take a couple of hours and you can expect to pay around $400 to $700, but the exact amount depends on the size of your home and its location. You’ll want to make sure you schedule your inspection early on in the process.
Home Warranty
When buying a home the appliances may be covered by manufacturer warranties. Be sure to have your agent ask the sellers about these documents beforehand.
However, a home warranty might be a good idea to provide additional coverage not only appliances but depending on the plan it may also cover the roof, plumbing, some electrical, and HVAC. They usually cover kitchen appliances, ceiling and exhaust fans, and a multitude of other things for a few hundred dollars a year.
Document Preparation
Document preparation fees are charged for preparing the necessary closing documents. This can usually cost $50 to $100 but can vary depending on the company.
HOA Fees
Typically, HOA or homeowner’s association are fairly common in Northern Virginia weather buying a condo, townhouse, or single family home. You’re required to join the association when purchasing a home within the community. Membership includes use of shared community features such as pool, fitness centers, and community center.
Loan Origination
A loan origination fee is charged by the lender for processing a new loan. It is one of the largest closing cost you’ll encounter.
Typically, lenders will charge 0.5% to 1% for the total loan amount.
If the lender takes 1% fee for your originating loan, in makes $2000 on a $200 000 loan.
Luckily, like any other mortgage terms, origination fees can be negotiable. One of the most common way is to accept a higher interest rate in return.
Title
When buying a home, you receive a document called deed, which shows that the property is transferred the legal ownership of the property to the buyer.
They’ll be an additional fee if a survey was ordered to mark property lines.
Title service fees also include costs associated with issuing a title insurance policy for the lender.
Service fees include the title search fee, the premium for the lender’s title insurance policy, and other costs and services associated with issuing title insurance.
Title insurance is issued to provide protection if someone later sues and claim to own the property you purchase.
Private Mortgage Insurance
Private mortgage insurance (PMI) may be required if you are using a conventional loan but a down payment of less than 20 percent. The purpose of PMI is to protect lenders in case you can’t afford monthly payments on your loan down the road.
Private mortgage insurance usually has a recurring fee, just be sure to cancel it after paying more than 20% of your home.
Taxes
Usually, the sellers pay the taxes from the beginning of the real estate tax year until the day of the closing, and the buyers should pay the real estate taxes due after closing.
If the seller paid the taxes for the entire year, the seller requires the buyer to reimburse for his or her prorated share.
However, if none of the taxes have been paid, the seller should be charged with the amount shared in escrow.
The home sale contract should explicitly set forth these requirements, requiring each party to pay his or her pro rata share of the tax.
Bottomline
The closing costs of buying a home can be anywhere from 2 to 3% of the contracted sales price.
Buying a home is a complicated process. Talk to Abraham and uncover some of the common cost surprises and to help you plan better.
Are you thinking about buying a home soon? Check out our Steps to Buying a Home Guide. Feel free to give me a call at 703-539-2053 or email [email protected] if you have any questions.
