Ever wonder why people say buying a house is expensive? Many people who haven’t purchased a home before assume that you can just sell your old home for a new one, like trading in a car. But there are a myriad of hidden (or surprise) fees associated with buying new property.
It’s not merely the sales price you’ll yield when purchasing a new house. You will need to be very organized in preparation for various closing fees, examination fees, home inspection costs, taxes, etc.
Given the unpredictable expenses, most customers are baffled about understanding what they’ll owe. Alex Lopez, Founder and CEO of both Homeway Real Estate and New Door Property Transfer, summarizes some of the most standard costs associated with buying a new house, step-by-step, so you can prepare for whatever comes your way!
If you’re purchasing a new residence, you will be responsible for closing fees. Closing fees are the costs needed to complete a property transaction whether incurred by a buyer or seller. Lenders must delineate closing fees in the loan estimation you obtained when you first applied.
“Be super cautious and curious before making an agreement with your lender,” said Lopez. “Ask as many questions as you can, everything you can think of — there are no stupid questions when it comes to where your money is going, and most lenders will be happy to answer. It shows that you deserve a loan.”
Typically, this cost is equal to 2% to 5% of the amount of the loan. The cheapest way to handle this fee is to pay it immediately, in one go, to avoid interest payments. However, with your lender’s permission and say-so, sometimes you can finance this by combining it with the loan.
Some states furthermore suggest low-interest loan programs and assistance particularly created to assist and support first-time home-buying customers with these fees. Contemplate reaching out to a professional, family friend who’s done this before or looking into your local laws to see if you can find some options.
You may also need an appraisal of the property. An expert does the assessment simply so the lender can confirm the property’s value. They will need to verify that the home is worth as much as you want to borrow because they need to avoid having people take out loans with extra money built in for other purposes. That way, if you fail to fulfill your loan obligation, they will be able to get any lost profits back.
Having a correct assessment conducted also helps the buyer ensure they borrow the right quantity.
Home Inspection Costs
Many lenders require home inspections on a property before they will agree to a loan. This requirement is especially crucial for government-backed situations, such as Federal Housing Administration (FHA) loans. In this case and others, the bank wants to make sure the home you are buying is, well, worth buying! They want to check that the house is suitable for living because they are essentially ‘going in’ with you on this purchase.
During the procedure, a home inspector will examine the soon-to-be-yours home to decide if there are any existing or likely problems. They will establish metrics to determine whether you are in a position to arrange a lower sale price, a bonus for you should their assessment turn out that way!
If there are severe issues, you may even have the option to back out of the contract if both parties can’t agree.
The application payment, or application fee, is yet another expense you must take into account when purchasing a new house. This payment is for processing your loan.
The cost of the application is different per lender and their process, so make sure you find out the cost directly from your lender specifically.
Lawyers Cost Money, Too
An ‘attorney fee’ might be required where you live because some state laws mandate that a real estate lawyer must oversee (literally, in-person) the closing of home sales. The number of hours the attorney worked can further impact the cost.
Upfront Mortgage Insurance, Another Potentially Unforeseen Cost!
Depending on their respective measures, your lender may also request that you front the entire first year’s mortgage insurance premium or complete compensation to cover the ‘life of the loan’.
If they determine that you will need to pay, they can expect anywhere from 0.55% to 2.25% of the sale price. Just like application fees, this cost differs from lender to lender, so it’s best to get your cost estimation straight from them.
Homeowner’s and Title Insurance
You might also be instructed by the lender to buy homeowner’s insurance that covers damage, vandalism, fire, and more, prior to inhabiting your new house. However, the type of insurance you will need depends on your house — location, price, your age, the size of your family, and other metrics.
Title insurance protects you, the buyer, and is not required in all states but is a wise investment every time. Title insurance shields you from issues that can arise if other people make claims on your home after you buy it. The good news is, in some localities, the home seller is lawfully obligated to pay for title insurance, not you. But if you live in an exempt state, you will pay between 0.5-1% of the sale price.
About Alex Lopez
New Door Property Transfer provides smooth home property title transfers and closing services for consumers, lenders, and investors. The company was founded in 2019 by Alex Lopez, CEO of Homeway Real Estate. For more information, please visit New Door Property Transfer.