Buying your first home can be an exhilarating experience. However, entering the world of homeownership, it is critical to remember that costs may quickly add up. From escrow and title fees to insurance expenses, and more, assessing hidden fees is an important step that helps to avoid stress when making a financial decision. Proactive planning allows new buyers to appropriately weigh the costs associated with the purchase of their first home. Read the article to learn more about major home-buying costs.
Types of expenses that first-time home buyers should consider
When searching for a home, most buyers focus on the price of the house. However, there are additional costs you should plan for. Understanding what is involved in buying a home will help you take much of the guesswork out of the process and make sure you’re well-positioned for homeownership success.
Home Appraisal
Allocating funds for a home inspection before purchase may end up being a great decision for both your wallet and your peace of mind. On average, buyers pay approximately $339 for an inspection, which can make a difference when it comes to a property’s condition. By choosing the opportunity to thoroughly inspect major areas such as the roof, HVAC systems, and foundation, one can save from having costly, hidden repairs in the future.
PRO tip: At LBC Mortgage, we understand that buying a home is a big financial decision, and we help our clients to save money by providing them with a free appraisal voucher. Contact us for details.
Loan origination fees
One of the expenses homebuyers must consider is a loan origination fee. This fee is charged by mortgage lenders in order to start up a loan and typically ranges between 0.5% and 1% of the total loan amount.
Although some lenders do not charge an origination fee, it is important to remember that interest rates may be higher in such cases. So, when deciding which lender to go with, it is crucial to weigh your options and select the one which offers both reasonable fees and attractive interest rates.
Property taxes
Property taxes are just one of the many costs homebuyers need to be aware of. These taxes are calculated using the per diem tax rate, which is determined by taking the total property tax amount and then dividing it by 365 days to create an average daily rate. Once this has been established, this rate can then be multiplied by the number of days in that tax year the seller owned the home in order to cover any applicable taxes due at closing.
It is important to know that depending on the state in which you purchase a home, there are different requirements regarding property taxes payments.
- For those living in states where property taxes are paid in advance for the full year, they will have to reimburse the seller of the home for their portion of taxes that cover any months past closing.
- Conversely, if the taxes should be paid after the end of the year, the seller will owe tax money to them for any days they stayed in the home during that year preceding its sale.
Underwriting and processing fees
Underwriting and processing fees help cover the costs of originating, processing, underwriting, and closing a mortgage loan. Taken together, these fees pay for the administrative work done by lenders throughout the lending process. It is an essential cost that helps to make sure that mortgages can be approved in a timely manner and with all necessary paperwork completed according to financial regulations.
Escrow account
An escrow account, funded with your property taxes and other expenses such as insurance, can provide your lender with important security throughout the payments. Your lender may request that you leave extra funds in your escrow account to cover potential miscellaneous expenses. And it’s wise to agree with this – after all, having the necessary funds on hand means you will avoid additional surprises or costly delays in payment.
Earnest money
After having your offer accepted on a property, putting down earnest money demonstrates your commitment to the sale agreement. The amount of earnest money and when it needs to be submitted will depend on the seller’s instructions, and it should generally be done within a day or two.
Title fees
Title insurance is a critical component of the home-buying process. While it may not be required by law, most lenders demand it to protect both the buyer and lender from any potential issues with the deed. Title insurance provides protection if there are problems with the property title discovered after you purchase a home, such as conflicts or hidden liens, or even undiscovered heir claims. This type of policy enables you to receive immediate legal assistance in resolving title-related disputes so that you can enjoy your new home without any concerns about past owners.
Homeowners Insurance
It is wise to invest some money in homeowners insurance to protect against unforeseen events, such as natural disasters or theft. Insurance prices will vary according to the insurer and their evaluation of the property’s location, particular features, and any potential risks present in the area. By purchasing homeowners insurance, your investment is protected by covering the cost of any unfortunate repairs or damages that may occur in the future.
Mortgage Insurance
Mortgage insurance is an important protection for buyers and lenders alike. Most conventional loans require mortgage insurance if you are unable to put at least 20% down on your home, while all FHA loans require the completion of such insurance. Though there are some ways to avoid mortgage insurance, it is still an integral part of the home-buying process.
Moving fees
After you secure the home of your dreams, it’s time to move. While this is a thrilling moment, it comes with some hefty costs, such as purchasing packing supplies and taking time off from work. It’s important to allocate some budget for hiring a moving company or renting a moving truck if necessary. Professional movers can make all the difference in how stress-free your transition into this new chapter of your life will be.
FAQs
1. What are the hidden costs of buying a home?
When buying a home, potential buyers should be aware of the hidden costs associated with their purchase. In addition to the listed house price, closing costs, such as title insurance and legal fees, will add up quickly. Maintenance and repair expenses are also inevitable, from changing out furnace filters to replacing a roof. Utility bills tend to be higher in a house than in an apartment – heating and cooling costs can skyrocket during extreme weather seasons. Property taxes also accumulate significantly year-over-year and depend on the value of the home and location. Failing to consider these additional expenses can lead would-be homeowners into hot water if they’re not prepared for them.
2. How can I budget for the unexpected costs of buying a home?
Preparing financially for a home purchase is essential, and everyone should take proactive steps to build up a bank account specifically devoted to dealing with unexpected costs associated with the purchase. That way, you won’t find yourself in an uncomfortable situation as a homeowner. Also, ensure that your credit score and other financial records are in good shape before making such a major investment.
Conclusion
When it comes to buying a home, there are some less-than-obvious costs that can creep up on unsuspecting homeowners. So, knowing what fees to expect can help take some stress off the shoulders of soon-to-be-homeowners, and make the process of purchasing a home smoother and simpler.
