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Buying Costs

What you should prepare for.
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Costs Associated With Buying A Home

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When thinking about purchasing a home, it's tempting to think of saving for only the down payment and the monthly mortgage after moving in. However, it's important to account for closing costs.

Appraisal

Cost Estimate: $200 - $500

An appraisal is an unbiased home valuation completed by a licensed appraiser. They are necessary reports that give lenders an official collateral amount for your loan. Home values can fluctuate by thousands from one block to the next so appraisers take each factor that goes into a home, like bedrooms and square footage, and do an accurate estimate of current value. They typically cost between $200 and $500 and are required to get a home loan.

Home Inspection

Cost Estimate: $300 - $500

Part of the purchase process for buyers is submitting a request for repairs, a list of reasonable repairs you want the seller to make to a home before you would want to move in. You should hire a licensed home inspector who will give you an entire report that includes damage to a home that will inform you in making a request for repairs list. An inspection will usually cost somewhere between $300 and $500.

Earnest Money Deposit

Cost Estimate: 1% - 3%

An earnest money deposit is a deposit that signals your willingness to complete a purchase of a home and will ensure the seller that you are serious about buying their home. It is usually about 1-3% of the purchase price of the home, depending on the home and the sellers themselves. Some only require a flat rate deposit of $1,000. Your agent should be able to inform you how much to give. The earnest money goes toward your down payment. Terms of returning the deposit if a deal falls through should be in the purchase contract, and in most cases should not be a problem.

Loan Origination Fee

Cost Estimate: 1% of Loan

Your lender should have a conversation with your about your income and debt before you submit an offer, provide a pre-approval letter that sellers can see that shows you are qualified up to a certain amount, and they provide your home loan by the close of escrow. Your loan application includes a fee called a loan origination fee and is usually around 1% of the entire loan amount.

Loan Processing Fee

Cost Estimate: $500 - $1,000

Lenders may also charge a processing fee to cover the costs of the underwriter and additional staff costs they may incur during the processing of your loan. This is typically $500-$1,000.

Mortgage Points

Cost Estimate: Variable

Your lender may talk to you about points, an amount you pay for your loan upfront that will lower your interest rate. It is known as buying points and is a way to lower your overall payment amount to your lending bank over time. You can talk with your lender about your mortgage points options.

Private Mortgage Insurance

Cost Estimate: $100/m per $100,000

Private Mortgage Insurance (PMI) is insurance you pay that protects your lender in case you stop making your mortgage payments. You will most likely be required to have PMI if you do not put down at least 20% of the purchase price down on your home. Lenders require this to offset the costs of recouping the amount that you did not pay off on the home if you stop making payments. Payments are standard and is usually around $100 each month for every $100,000 of the loan amount.

Association Dues

Cost Estimate: $50 - $500

Many homes are in communities that have homeowner association (HOA) dues each month. HOAs differ from community to community from $50 each month to as high as $500 in some areas. It's an important factor toconsider when looking at homes and does not go toward your mortgage payments. Association benefits include upkeep of a community pool, clubhouse, or maintenance of the cleanliness in common areas.

Homeowner's Insurance

Cost Estimate: $75 - $110 per Month

YAs a home buyer, you should consider purchasing home insurance. Most policies cover damage caused by fire or other accidents. You will be able to find plans that give you liability coverage when people are injured on your property, living expenses (e.g. hotel costs, meals) if your home is damaged from a natural disaster. Costs vary by area and individual plans, but you should expect to pay between $75 and $110 each month.

Property Tax

Cost Estimate: > 1% of Home Value

Homeowners will have to pay property taxes on their home each year that are associated with your home's assessed value. After you first move into a home, your taxes will be at least 1% of the home's value after the first fiscal year. Your home's taxes may include special assessments like Mello Roos if it is a newer home that pays for parks, roads, street signs, and other costs of building the neighborhood, that is in addition to the tax rate. Taxes are usually just over 1% of the home's value. You should have your agent check each home's tax rate that you want to make an offer on.

Title Insurance

Cost Estimate: $1,000 - $2,000

A required fee for title insurance is added at the close of escrow. If there are problems or ambiguities regarding prior ownership of the home you are buying, title should find the issue and advise you on how to resolve it. In case they do not, title insurance is added to fray any costs not found, such as liens or fraud on previous title changes. Title insurance is a one-time upfront fee that is between $1,000 and $2,000, depending on your loan amount.

Recording Fee

Cost Estimate: $50

There is a small fee to have the deed of trust officially documented with the government, which is usually around $50.