Your house is probably the biggest investment you will make in your entire life. Besides the asking price for the house, you will also need to pay for many fees, one-time and reoccurring ones, so make sure to include them into your budget so you don’t break it even before you move into your new home. To make things clearer for you, here’s a little guide to the most expensive fees you need to pay before, during and after buying a house:
Appraisal fees are usually a necessary part of buying a house and they included the costs of estimating the value of the property you want to buy (this is done so lenders can calculate your loan-to-value ratio). Appraisal fees include a third party appraiser specialist and a one-time fee which depends on your location, size of your property and appraiser—usually between $300 and $1,000.
It’s also possible to require a home inspection so include these fees as well. Your lender might ask for a home inspection to confirm that the property you want to buy is suitable for living. You yourself can choose a home inspector and pay after the deed is done (usually between $300 and $500).
Loan origination fee
This is the single biggest closing cost and the main way lenders make their living. Origination of the loan is usually charged around 1% of the loan amount, which is not a small number (a $100,000 mortgage will cost you $1,000 in origination fees).
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When buying a home, it’s necessary to replace the seller’s name on the title with your name, which also pulls many different fees with it. For instance, you might require a title search fee for a third party to conduct an investigation of the property’s records. Some purchases need to become a matter of public record so it’s necessary to hire a local recording officer to record your purchase which also requires a fee.
In addition, your lender might require the purchase of a lender’s title insurance that offers a safety net for their investment. There’s also owner’s title insurance that protects your side of the investment in your property.
It’s not smart to live in a house that’s not covered by home insurance, because this expense protects you and your investment. If you get the right coverage with the right company, your insurance will cover your house, secondary buildings, your possessions and guest medical protection. However, be careful of junk insurance fraud that might push you to pay for coverage you absolutely don’t need. Luckily, today it’s possible to get reimbursed after paying for junk insurance, but it’s better to avoid it altogether.
There are different taxes you might expect to be charged at closing and they all depend on your country, state and even city. Usually, it’s necessary to pay two months’ worth of property taxes in advance, during closing. You might be asked to reimburse the seller for property tax because this is paid in advance. Transfer tax is your next expense, imposed on the buyer by the state as a fee for the passing of title. This tax also varies from state to state and municipality to municipality, and you might even agree to split the cost with the seller.
This fee is a reoccurring fee you pay to your money lender for borrowing you money. Until you pay off your loan, interest can end up costing you thousands of dollars, so make sure to understand what it is and how it functions. There are different types of mortgages such as a fixed-rate mortgage that retains the same rate over the entire loan and a variable-rate that changes over time. Your credit score, your down payment and the loan type all affect the rate of your mortgage.
In most places, the owner is required to pay a property tax on every piece of real estate they have in their name. They are usually paid annually in advance, but some places allow installments throughout the year. Check the amount you need to pay in property taxes to make sure you can cover them every year.
As you can see, buying a house doesn’t just include the price of the property but many other fees and taxes that add up and end up costing a lot of money. But if you include them all in your budget, you will know exactly what to expect and won’t get caught by surprise when the bills start arriving. This is responsible homeownership!