You’re ready to buy your first home. You’ve talked with a lender and have an idea of what you can afford, but there is much more involved in buying a home than just the cost of the property. Sometimes the hidden fees can catch rookie buyers off guard, and potentially derail the entire transaction. Before you jump in, check out these additional costs to ensure you save enough for your new home.
Earnest Money Deposit
Often called a “good faith” deposit, an earnest money deposit is common in real estate transactions and shows a buyer is committed to purchasing a particular home. The money is typically held jointly in a trust or escrow account, and when the transaction is finalized, it goes towards the buyer’s down payment.
“The earnest money deposit is especially critical in competitive markets, much like we are in today,” said REALTOR® Vicki Williams with RE/MAX Real Estate Professionals. “In a multiple offer situation, that good faith deposit can put you in a really good light and make you look like a stronger buyer.”
A home inspection will typically cost between $300 and $500, depending on where you live and the size of the property. However, this step is a crucial element of the home buying process. Buyers need to be aware of any major repairs or concerns they are getting themselves into.
A land survey includes the property’s boundary measurements, and may contain a drawing of the property’s features from an overhead perspective. It may also include details such as buildings, sidewalks, fences, trees, and driveways, as well as encroachments, easements, rights of way, contour mapping, etc.
“Buyers will often make an offer contingent on a home inspection and a land survey, especially in more rural areas,” said Williams. “It’s critical for buyers to know where their lot lines are, especially if they are going to build an addition or deck, or add a fence.”
A boundary survey runs approximately $300-$600 for platted property within a subdivision, and $2,000 and up for acreage and unplatted land, depending on the size of the property.
All mortgage lenders require a home appraisal before they approve financing because the home serves as collateral for the mortgage. If for any reason the borrower defaults and the home goes into foreclosure, the lender will need to sell the property to repay the loan.
The mortgage lender will choose the appraiser, and the borrower is responsible for paying the appraisal fee, which typically costs around $300-$450.
Your home is one of the biggest investments you will make and it’s critical that you protect that investment with the proper insurance coverage. However, it’s important to remember that your general homeowners insurance policy does not cover natural disasters, like floods. So, if the home you are buying is at risk, you will be required to carry additional flood insurance, and the cost can vary. Premiums are calculated depending on location and risk factor.
Private Mortgage Insurance and Title Insurance
If your down payment is less than 20 percent, you will most likely have to carry private mortgage insurance (PMI). PMI typically costs between 0.5 percent and 1 percent of the total loan amount. For example, assuming a 1 percent PMI fee on a $120,000 loan, the borrower would pay approximately $1,200 each year, or $100 each month. The PMI rate is determined by the borrower’s credit score, the loan type, and the amount of the down payment.
Title insurance is another fee that can be overlooked. Title insurance protects you if in the future you discover that someone else could lay claim to the title, and therefore ownership, of the house The cost of this insurance is related to the value of the property, so the amount will vary, but typically it is equal to 1 percent or less of the property value.
You probably know that you’ll be responsible for property taxes, but it might surprise you to know that you may have to pay for some of those taxes up front. In addition, there will be other fees due as part of your closing, including government recording charges, a credit report fee, tax service fee, flood certification fee, lender’s origination fee, document preparation fee, and postal/courier fee, among others. Should you choose to have an attorney review your closing documents, you will also need to set aside funds for that.
Williams says in order to be prepared for these costs, potential buyers should enlist the help of a local, trusted lender and REALTOR®.
“The thought of owning a home is very exciting, but before you get caught up in the house hunt make sure you are really educated on the process,” she said. “Don’t go into this blind and don’t rely on the internet alone for your information. Sit down with the local professionals, ask questions, and really pay attention to their advice. Together we can make sure you are fully prepared and eliminate any surprises.”
As a buyer, which costs you are responsible for will depend on your specific transaction, so if you’re thinking of buying a home and would like more information, visit the Greater Lansing Association of REALTOR®’s website at www.lansing-realestate.com for a list of area experts, including REALTORS®, lenders, home inspectors, and appraisers .
Read or Share this story: http://on.lsj.com/2jvW3pN