While interest rates and down payment amounts are important to understand when preparing to purchase a home, so are the myriad other fees and expenses that come with starting your life as a homeowner.
Taking these additional expenses into consideration will help you more adequately prepare and help facilitate a smooth process for purchasing your dream home.
Although you may want to simply sign one check to the seller and call it a day when the time comes to close, that won’t be the case. On closing day, you’ll need to settle up accounts with several people, including the seller, your mortgage surveyor, the appraiser, and any other involved parties.
[Related: Tips for Choosing the Right Loan Terms for You]
What Is a Closing Disclosure?
These fees typically won’t surprise you, since you should receive an updated loan estimate and closing disclosure ahead of time that outlines all of the expected costs and lets you know how much cash-in-hand you should have prepared to close.
A closing disclosure is an itemized list of every closing cost you will be expected to pay in order to purchase your home and close the sale. This form describes in detail the aspects of your mortgage, the purchase price of the property, your interest rate, real estate taxes and insurance, and other expenses.
A closing disclosure is required to be delivered to the buyer at least three days before the closing date so that you can thoroughly inspect and review it.
Major Fees When Purchasing a Home
Here are some of the major fees (besides your down payment) that you could be expected to pay in order to close the sale and purchase your home. Note that these fees will vary from state to state, and some of these fees could also be paid or waived by the lender or seller — but being aware of this information will ensure that you and your wallet aren’t blindsided.
[Related: Six Mistakes New Homebuyers Make]
Application Fee
The application fee is what your lender will charge you to process your loan application, and will vary by lender.
Underwriting Fee
If a lender underwrites your mortgage, meaning they examine it to determine your risk to them if they accept the loan, then they will typically charge an underwriting fee.
Credit Check Fee
Although some lenders will cover the cost, a credit check fee will cover what it costs to pull your credit report, and is typically between $30 and $50.
[Related: In a Hurry? Tips to Close Your Mortgage Quickly]
Title Fees
This charge covers the cost of searching a title database to ensure no one besides the person you are buying from lays claim to the property, as well as the cost of transferring the title from seller to buyer.
Survey and Appraisal Fees
Survey and appraisal fees will take care of appraisal services you may have used before deciding to purchase. If you had a third party appraise the house to determine its worth or do some other sort of home inspection, the fee is typically between $300 and $500.
Homeowner’s Insurance
This fee will cover your homeowner’s insurance, which almost all lenders require purchasing at 100%. This insurance can protect you (and your lender) from unexpected disasters and damage to the property.
Property Taxes
Once you purchase a home, your city or county will require you to pay property taxes. Property taxes are typically included in your monthly mortgage amount, but are separate from the interest and principal.
[Related: Make Sure You Have These Supporting Documents for Loan Approval]
No-Closing-Cost Mortgage Options
If you need financial assistance to take care of all of these fees, many lenders can offer a no-closing-cost mortgage. This option will include your closing costs into your loan principal, or lump them into what will become a higher interest rate on your loan.
Although this can help you avoid paying the fees upfront, it can also cause you to pay more in the long run.
[Related: Mortgage Options with No (or Low) Down Payments]
Look Ahead
In addition to the fees that you’re required to take care of on the day of closing your purchase, you should also look ahead. Knowing what you need to save up for in the future will help you stay within budget and enjoy your new life as a homeowner.
Utilities and Maintenance
Planning for any maintenance, repairs, and utilities ahead of time is important since these things usually need to be taken care of in a timely fashion.
Experts recommend budgeting at least 1% of your home’s value for maintenance savings every year. Utilities — including water, sewer, gas, and electricity — will vary by location and property type, but are something to consider when it comes to budgeting for owning a house.
[Related: Fixer-Upper Mortgage Options and What to Know Before You Buy]
Emergency Fund
An emergency fund is crucial to “expecting the unexpected” and being prepared when disaster strikes. This fund can be used to address non-budgeted concerns as they pop up. Many people recommend saving three to six months of living expenses and setting them aside as your emergency fund.
Contact Seattle Mortgage Planners Today!
Are you a prospective homebuyer curious about the process of purchasing a home? Seattle Mortgage Planners can help you with anything from navigating closing costs and loan options to the best neighborhoods to move to in Seattle.
Contact us today and let’s get started on your journey.
