When you’re determining how much you can afford to spend on your new home, you’re likely to pull up a, punch in what you can afford in a monthly payment and begin your search based on the calculator.
Don’t forget closing costs
But what many first-time buyers don’t realize is there are several other costs that go into purchasing a home. The cost of closing alone can add thousands of dollars ($3,700 on average) to the price of a home, not to mention thousands more for homeowner’s insurance and property taxes for as long as you own the home.
Calculate for these nine hidden costs of homeownership
Following are the primary costs you need to consider when determining the price of the home you want to buy.
#1 Home inspections
$300 to $500
Before you sign on the dotted line, you’ll want a thorough inspection of the property you’re about to buy. The cost for a home inspection is money well spent because it lets you know exactly what you’re getting into. Plus, depending on the outcome, it may give you a little leverage to ask the seller to share in some closing costs.
#2 Appraisal fee
$200 to $425
An appraisal not only ensures you’re getting value on your investment; it also ensures the bank that your home is worth the size of the loan. That’s why lenders require it.
#3 Title services
Lenders will require title insurance on your property to protect their investment from title defects. You, as the buyer, should do the same for yourself. A title company will research the title to clear any defects before closing and upon clearing the title will offer you insurance to cover you for any title disputes that may arise.
#4 Lender’s origination fees
0.5% to 1.5% of total loan
This covers the lender’s administrative costs to process the loan together, including underwriting, funding, notary fees and document preparation. Some lenders may also separately charge an application fee to cover costs such as a credit check.
#5 Survey costs
$150 to $400
Most lenders will also require a land survey before closing that serves as a legal description of your property and shows its features from a bird’s eye view.
#6 Private mortgage insurance
0.3% to 1.5% of original loan amount
If your down payment is less than 20 percent, your lender will require private mortgage insurance to cover their investment in case you default on the loan.
#7 Tax service fee
Depends on where you live. The lender will want to be certain you’re paying your property taxes to ensure its access to collateral in case of a default, so it will use a tax service to monitor your tax account and alert it to any unpaid tax bills.
#8 Homeowner’s insurance
Varies widely depending on home, location and contents
You may be seeing a theme here. Lenders will require you to carry homeowner’s insurance to protect their investment from unforeseen events, like fires or natural disasters. Keep in mind that most homeowner policies do not cover flooding, so if you choose a home in a flood plain, your lender will require you to purchase flood insurance on top of the homeowner’s policy.
#9 Property taxes
Depends on the value of your property
Somebody has to take care of the streets that give you access to your home along with the running water and other pipes needed for modern-day plumbing. That body is your local government. As long as you own the home, you can expect to pay property tax on it, so it’s best to calculate that expense into what you can afford to pay each month.
Ask your real estate agent to help you track and understand the expenses involved with closing on your new home. Experienced Realtors may be able to identify opportunities to find or negotiate lower rates…and when it’s time to find a new lender.