Buying a house, especially your first house, can be exciting and a little overwhelming. While you may have heard about advertisements touting zero down home loans and no money out-of-pocket, buying a house is just plain expensive, and there’s really no other way around it. You can buy a house with very little down payment or you can roll down payment into the cost of the house as long as the home appraises for the higher or inflated cost, but buying a house is not cheap. I don’t want to deceive you thinking you can buy a house with less than $20 in your bank account, because you can’t. And, do you really want to? Think of it, if you’ve been renting for a long time and suddenly you become a homeowner, now you are responsible for anything and everything that breaks or needs repair in the house and if you don’t have a lot of money in the bank, you could be racking up some credit card debt fairly quickly. I don’t want to scare you away from buying a house but I do want you to be prepared.
Here are 20 additional costs of buying a home that you may not know about.
#1. Good faith estimate or earnest money.
When buying a house you’ll need to put down an earnest money or good faith estimate when submitting an offer. This money doesn’t get deposited until the seller mutually accepts your offer but this cost is typically between $500 and 3% of the purchase price of the home. The higher the earnest money deposit the more skin in the game at the buyer has and the more likely your seller is going to accept the offer. An earnest money deposit of around $1000-$3000 is pretty accurate but in a buyers market, sellers could accept something as little as $500. Again, this is not get deposited until the seller accepts your offer, and then this money goes towards the purchase price of your home.
#2. Property taxes.
You probably have seen it in the real estate listing but completely glossed over it but property tax needs to be estimated and divided by 12 to give you some idea of what your monthly payments will be. You can add this onto your monthly mortgage payment or take it out annually or biannually.
#3. Personal or private mortgage insurance.
Depending on the type of loan you get you may have private mortgage insurance added onto your monthly payment. If you didn’t have a high enough down payment, lenders may see you as a high-risk borrower so they may add on .3% to 1.5% onto the cost of your mortgage to protect themselves.
#4. Homeowners or hazard insurance.
Again, it can be added onto your monthly mortgage payment and if so, talk to your lender about adding all these additional monthly fees onto one monthly payment. You’ll need to pay homeowners insurance which is about $1000 a year or so. This covers your home in case of a fire, flood, or theft.
#5. Mortgage interest.
We used to be able to deduct mortgage interest but with higher standard deductions your mortgage deduction may not even register however, you will need to calculate this interest and pay it within your monthly mortgage fee. Your lender will explain all of these details.
#6. Application fees.
Yes, you’re going to be charged simply for applying for a mortgage. This could be up to $500 because of all of the research that title companies and lenders need to do on your finances, assets, income, and liabilities. This fee will usually be included in your closing costs.
#7. Underwriting fees.
Again, this is included in your closing costs but you have additional fees such as underwriting fees, credit reporting fees, processing fees, transfer fees, document preparation fees, tax service fees, and courier fees.
Appraisals may or may not be built into your closing costs so it’s important to ask. These fees can be anywhere from $300-$600 and the work has to be paid up front since the appraiser needs to be paid regardless of whether you buy the home or not.
#9. Title insurance and escrow.
Someone must search public records for your new home to make sure that you can legally buy it. There are notary fees from the person witnessing your signature on documents and filing fees, title insurance premiums which are paid by the buyer and the seller, escrow fees for a mediator to facilitate the transaction and pull all the documents together, and any additional title search fees.
#10. Closing costs.
Closing costs will usually incorporate a lot of what we’ve already talked about but additional attorney fees, property transfer taxes, and courier costs all can be combined into closing costs. These fees are anywhere from $3000-$15,000 depending on the area in which you are buying and the amount of purchase.
#11. Home Inspections.
This is another one that may not be incorporated into the closing costs and will need to be paid out-of-pocket at the time of service. You need to have a general home inspection which can run anywhere from $200-$800 and then you might have additional inspections for pest-control, roof certification, septic or sewer, or foundation, which can run up to another thousand dollars. Related: Is a home inspection different on waterfront or oceanfront property?
#12. Prorated utilities.
You may or may not have to pay for prorated utilities depending on when you move in. You may need to start up new utilities if the home is been vacant for some time and this can add anywhere from $100-$300 onto a monthly payment or additional fee.
If you are buying new construction it might seem fantastic to live in a home where no one has before but if you’ve been adding on or upgrading materials, appliances, and finishes along the way you may find out that you owe more at closing than expected. It’s important to understand all of the upgrades and how they will be paid.
#14. Pools and/or hot tubs.
This really falls under home maintenance but if you are buying a home with a pool or hot tub you will have additional maintenance fees, potentially higher homeowners insurance, and you might need additional insurance just in case.
#15. Septic tanks.
Not hooking your home into a sewer system can save you some money but septic tanks are little higher maintenance and you may need them additionally inspected.
Depending on where you have lived before you may or may not have paid utilities but living in your own home means you now have cable, water and power, sewer, electrical, cell phone, Internet, and any other utility you might consider. This can add on an additional $1000 per month if you have not been paying this so far.
#17. Discount points.
You can actually pay down the mortgage on your home loan with discount fees. This can be 1% to 3% of the purchase price but it can save you a lot of money in the long run, especially if you have poor credit.
#18. Locking fee.
No, this isn’t the lock to your front door, but more locking in the best rate possible and it costs money to do that. Considering a rate lock on a $250,000 mortgage could be $2500 but it could save you over the life of the loan if you’ve locked in a lower rate and then by the time you close rates have gone up.
Not every property will require a survey but if you are concerned about the size and dimension of your property or you’re worried that a neighbor’s fence might be encroaching on your new property, you may have to pay for a survey which can cost around $500.
#20. Lender credit.
This is an uncommon fee but locking in an interest rate can reduce the amount paid in closing costs with a lender credit. You may be paying a higher interest rate so it’s important to talk to your lender before taking this option.
Buying a home is exciting but we also want you to be prepared for all the fees and costs involved. One of the best things about buying is that you don’t have to pay for a buyers agent. Your buyer’s agent help to facilitate the transaction and advise you along the way and the seller will pay the commission for the buyer’s agent on whichever home you choose. Our goal is to help you find the right home and make you feel comfortable about your purchase. This is only done by understanding everything about the process and answering questions that come along.
For more information contact our office today or get started searching for the right home along the Gulf Coast or to get in touch with a lender in our area.