If you’re a buyer navigating the home buying process for the first time, you likely have a good understanding of many of the steps involved and the budget needed to buy a home. However, there are so many aspects of the actual home buying process that it often takes an entire team of experts to ensure a smooth home sale. Most buyers realize that they’ll need a down payment as an upfront cost, but there are some fees that come along with buying a home and getting a mortgage which many buyers may not be prepared for. Here are 5 costs in the home buying process that may catch you by surprise!
Earnest money
One cost that sneaks up on many buyers is “earnest money.” This is a small percentage of up-front cash that the buyers pay to the sellers of a home as proof of intent to buy. It is usually 1-3% of the purchase price of the home, and it is generally paid directly from the buyer to the seller – not through a mortgage company. Earnest money is different from a down payment, and if the buyer chooses to not go through with the sale, the seller can keep the earnest money. This fee may not be required, but it culd be necessary to secure your dream home in your dream neighborhood, and avoid a bidding war.
Home Inspection Fees
A home inspection is a very important part of the home buying process, and while this may be an expected cost for some buyers, many may be caught off guard. An inspection can cost anywhere from $300-$500, and could even be more than that if there is a specialist involved (like a septic inspector). While this is no small chunk of change, it is a necessary and useful expense to ensure that the buyer is aware of the current state of the property. One way to save on an inspection is to shop around for the best value. While you’re doing price comparisons, be sure to factor in quality! Review sites like Yelp and Angie’s list can help you find a highly-rated local professional at a reasonable cost.
Insurance
There are a lot of different types of insurance that may be required in the home buying process. If you choose to put less than 20% down and get an FHA loan, you’ll need to pay private mortgage insurance (PMI) along with the monthly mortgage payment. An up-front cost that comes along the PMI is a mortgage insurance premium. This fee usually comes out to 1.75% of the base loan amount.
As you likely know, when you purchase a new home, you’ll need to get homeowners insurance to protect against possible damage to the property. Many buyers aren’t aware that the first year of the homeowner’s insurance is generally paid upfront at closing.
Homeowners Association (HOA) fees
Homeowners Association fees are not always included when purchasing a home, but they are one of the fees that can catch buyers off guard. If you’re buying a home within a Homeowners association or condo association, you may be required to pay the yearly dues up-front when you purchase the house. Alternatively, the fees could be included as a monthly payment throughout the year.
The most important thing to do in regards to HOA fees before buying, is to make sure that there are not any unresolved claims required on the property to make it HOA compliant. If you don’t check, you could be stuck having to complete a major paint job or home improvement project to keep up to the standards of the HOA.
Taxes
Taxes are another unexpected fee that will come up in the home buying process. Most buyers might expect to pay their first year of property taxes when the rest of their taxes are due, but it is typical for a lender to ask the buyer to pay 2 months worth of property tax at at closing.
Another tax that will be included in a home purchase is the “transfer taxes.” These taxes cover the transfer of the title from the seller to the buyer, and they are also generally paid at closing.
