A Complete Guide to Homebuying Fees
How much house can you afford? While your estimated down payment and monthly mortgage payment are a big part of the equation, don’t overlook all the fees you’ll encounter along the way — from financing and inspections to title insurance and taxes. All told, these additional costs can add two to five percent of the purchase price.Here are some of the most common fees to expect, although they can vary by state and individual market — and some are negotiable. Consult your real estate agent for an estimate of fees before you start hunting for your dream home.
A home loan can have myriad associated fees that catch first-time homebuyers by surprise. Below are some of the most common ones.
Processing fee: This is a blanket fee that usually includes items such as credit checks and administrative costs. Buyers should ask if it also covers the cost of the home appraisal or if will be a separate charge.
Appraisal fee: Required by lenders, this fee is for an appraiser to determine the fair market value of the home. The fee amount varies and depends on a number of factors including purchase price and location.
Private mortgage insurance: Buyers who put down less than 20 percent of the mortgage amount may be required to pay for PMI The cost is typically 0.3 to 1.5 percent of the loan value, depending on the size of your down payment; the more you pay down, the less your PMI.
Origination points: These constitute an extra 0.5 to 1 percent of the loan amount. Points of origination fees are charged by many lenders as compensation.
A house is a huge investment, so go in with your eyes wide open whenever possible. A detailed home inspection is money well spent since it can uncover hidden costs and hassles.
Home inspection: Every buyer needs a home inspection to assess and protect their investment. This runs an average of $400, but can be less for smaller homes and condos. Inspections for larger property can easily run upwards of $1,000.
Roof inspection: Depending on the age of the roof, it can be worthwhile to bring in a specialist to determine the condition of the roof and cost of replacement — typically about $400-600, although some contractors will offer an estimate for free. If the roof is near the end of its life, you may be able to negotiate the cost of a new roof with the seller.
Pest and mold inspection: A generic home inspection may cover this, but if there is evidence of either, you may prefer to consult a specialist.
Flood certification: Check with your county or city to determine if your property sits in a floodplain. Standard insurance policies don’t typically cover flood damage.
Before you can clear the final hurdle to homeownership, you’ll face a final category of fees related to title, taxes and insurance.
Lender’s title insurance: Title insurance is required and is an indemnity for lenders against losses from claims that exist prior to ownership, and the cost is a function of the loan amount.
Owner’s title insurance: Protects the homeowner against losses from claims that exist against the home prior to it being purchased.
Attorney fees: More than 20 states require an attorney to be present at the closing in lieu of an escrow officer.
Taxes: Many counties charge a transfer tax for the recording of a property deed; the seller is often required to pay this. You may also have to pay outstanding property taxes.
Homeowners insurance: This covers possible damages to your home. Your first year’s insurance premium may be due at closing and can range from $350-$1,000. As a rule of thumb, we recommend using 0.35 percent of the purchase price.
Document preparation fees: This fee is self-explanatory and usually is regarded as an additional “junk fee.” Question this fee and negotiate it away.
Prepaid interest: This pays the mortgage interest on the loan that accrues between your closing date and the first mortgage payment; it varies with the amount of the home loan.