Buying a home is something that everyone starts planning on their own. Over time, home buyers acquire a team including a real estate agent, inspectors, mortgage lending agents, and a lawyer. However, your earliest calculations are often just speculation as to how far your savings will go in the downpayment for a home. But most first-time homebuyers don’t realize that there are some fees you may not know about before you close on your home and get the keys.
There are three categories of hidden home buying fees. There are opening fees, required insurance, and closing fees.
Opening fees are what you pay before you buy and as you begin the buying process. They are fees you must pay before negotiations for the buying contract are even settled.
1. Inspection Fee
The first fee that every home buyer should be prepared to pay is the inspection fee, or multiple inspection fees. Inspections ensure that each home is in good condition with no surprises like a sinking foundation or hidden mold.
2. Appraisal Fee
Appraisal is different from inspection. Appraisal defines the approximate monetary value of a home, and is necessary before the bank will issue a mortgage. You will likely pay the appraisal fee out of pocket as well.
3. Title Check
A title checking fee is paid so that a lawyer or official will check the status of the home’s title. This will ensure that there are no liens or mineral rights you should know about. A title check also confirms that the home really belongs to the owner who’s selling it.
4. Earnest Money
Earnest money is a percentage of the money you will pay the seller that is placed in an escrow account at the beginning of negotiations. Earnest money does eventually go toward your home buying amount, but it must be non-borrowed money paid early to show you are serious about buying the home.
5. Escrow Fees
Escrow fees are the costs paid to maintain the earnest money in the escrow account.
When a bank lends you money for a mortgage, they want to make sure everything is secure. This means they may require you to have one or more types of insurance on the house.
6. Mortgage Insurance
Mortgage insurance is necessary if you pay less than 20% downpayment. The home buyer makes payments ensuring that the bank will get some money back if you default on the mortgage loan.
7. Homeowner’s Insurance
Homeowner’s insurance covers property damage, theft, and homeowner liability. Your bank may require you to get homeowner’s insurance to protect the value of the home they have invested in through your mortgage.
8. Title Insurance
If you did not perform a title check, title insurance protects your earnest money and other payments if there does turn out to be trouble with the title at the end of the purchase process.
Closing fees are those necessary to complete the home purchase and file all the necessary paperwork. Closing fees are any expense that happens at the end of a home buying deal.
9. Property Tax
Property tax is something that new homeowners often overlook. It is necessary to pay the first month or more of property tax as part of the closing fees.
10. Points or Origination Fees
A points fee or origination fee is paid to the bank or lender for creating the loan. This can add unexpected costs to your mortgage payments.
11. Buyer’s Agent Commission
Your buyer’s real estate agent has worked hard to find the perfect home and facilitate the purchase every step of the way. Buyers agents are paid a percentage of the buying price by their brokerage, which is paid by the seller. But there may be some final records to settle.
12. Document and State Recording Fees
Finally, there are document-related closing fees. There are document preparation fees, filing fees, and state recording fees often paid to a lawyer. These are the costs for filing the paperwork that finalizes your home purchase and registers you as the new owner.
Home buying fees can be a real drag on your plans to become a homeowner. The best way to plan your finances for homeownership is to be prepared. Contact us today to speak to an experienced mortgage loan originator and explore all the potential hidden costs in your home buying process. Find out what your earnest money, closing fees, and property tax will likely be before you enter negotiations for a home. Our team is here to help you prepare for a smooth and enjoyable home buying experience. Click here to get started on your loan pre-qualification, or click here to contact us.