Costs of buying a home
There are costs associated with purchasing a home. I am including some common fees that you may encounter during your transaction. Please know that most fees are negotiable.
- Origination: The fee the lender and any mortgage broker charges the borrower for making the mortgage loan. This fee varies greatly lender to lender, so you will want to shop around for the best lender fees.
- Points: Points are a percentage of a loan amount. For example, when a loan officer talks about one point on a $100,000 loan, this is 1 percent of the loan, which equals $1,000. Lenders offer different interest rates on loans with different points, which allows you to pay for a potentially lower interest rate.
- Underwriting: Paid to the lender, this fee covers the cost of researching whether or not to approve you for the loan.
- Appraisal: This charge pays for an appraisal report made by an appraiser.
- Credit report: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.
- Flood determination: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance is paid separately.
- Prepaid interest: This is money you pay at closing in order to get the interest paid up through the first of the month.
- Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor’s fee, but sometimes this may be paid by the seller.
- Title insurance binder: Commitment to issue a title insurance policy at future date.
- Lender’s title insurance: The cost of the lender’s policy, which protects the lender’s investment.
- Mortgage insurance premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.
- Settlement: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee can be negotiated between the seller and the buyer.
- Title search: The fee to search the public records of the property you are purchasing.
- Document Preparation: This fee covers the cost of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.
- Notary: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.
- Attorney fees: Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents. Frequently, however, where an attorney is acting as a settlement agent, there may only be one involved in the closing. Who pays for those services is a matter of contract negotiation.
- Recording fees: These fees may be paid by the buyer or the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage.
- Owner’s title insurance: The cost of the owner’s policy, which protects the homeowner’s investment for as long as they, or their heirs, own the property.
- Homeowner’s insurance premium: This insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders will generally escrow this payment, and will pay the insurance premiums for the homeowner.
- Home inspection: Fee to verify the condition of a property and to check for home repairs that may be needed before closing. This will also vary greatly, but most home inspections cost in the neighborhood of $300-$600.
- Pest inspection: This fee is to cover inspections for termites or other pest infestation of your home. A lot of lenders will require this, so check with your lender ahead of time if this is a requirement. Pest inspections generally cost between $75 – $200.
- Property taxes: If the property has a mortgage, the lender will generally escrow the property taxes, and pay them on behalf of the homeowner. The buyer will get a credit for the seller’s portion of the property tax through the date of closing, unless they taxes have already been paid for the year, and then the seller will get a credit for the portion of the year that is remaining.
- Home warranty: Fee for an insurance policy to protect you from cost of unexpected failures to the major systems and appliances in your home.
- HOA Transfer/Capital Contribution Fees: These are fees charged by the HOA, generally to the buyer, to transfer the property over to the new owner. These fees can vary greatly, so be sure to research these ahead of time.