If you’re a rookie homebuyer, be prepared. The process might not go as smoothly as you think: Don’t expect to find a home, make an offer, have it accepted and then show up at closing, pen in hand, to sign away the next 30 years of your life. No, the process isn’t nearly that “simple.” If you want a comparison, think about the last time you bought a car. Remember how the sticker price matched up with the price they showed you back at the finance officer’s desk. No, you don’t remember that, because those prices didn’t match. There’s always the tax and title and destination and a whole bunch of other charges that get added on before you find out the actual amount you’re paying.
There also are add-ons with a house. Here are some things you might run into that you weren’t expecting when you negotiated what you thought was a ‘final’ price with the seller, many of which will show up in your closing costs:
• Home appraisal. Your lender will require you to get an appraisal to make sure the purchase price you negotiated with the seller doesn’t exceed the market value of the home. The cost varies according to location, but you expect to pay about $300-$500.
• Home inspection. You’ll probably want to have two kinds of inspection. One will make sure the house is structurally sound and that things in it work correctly. It will cost anywhere from $250 to $500 and will give you an indication of what kind of shape the roof is in, for example. The other is a pest inspection – usually required in humid locales but a good idea regardless. This is where you’ll find out if there are termites or other insects that could threaten your home. The typical cost is around $100.
• Loan origination fees. Yep. You have to pay the lender up front to start the process of giving you a loan, which you of course will pay back with interest. A lot of interest. The fee can be as much as 3% of the mortgage.
• Survey. This isn’t always required. Again, however, it is probably a good idea to make sure you know the boundaries of the property you’re buying and to make sure that the structures and improvements actually are within the boundaries of the lot. Similarly, you’ll want to know whether a neighbor’s buildings or improvements are partially on the property you want. Again, the cost depends on the locale and the size of the lot, but you could expect to pay anywhere from $300 to $1,200.
• Title search fee and title insurance. You need the search, which will cost roughly $100, to make sure there are no liens, easements or mortgages on the land. The insurance, which likely will range between $1,000 and $3,000, will cover you if there are unrecorded liens or other problems with the title. Your lender likely will require these.
• Flood insurance. Homeowners insurance doesn’t cover flooding from rising waters. So if you live in a flood plain, you’re going to have to buy this. Depending on where you live, you could be required to buy earthquake insurance for the same reason. How much it will cost will depend on how great a threat is posed by these hazards.
• Attorney’s fees. This goes to the lawyer who closes the transaction. Again, it’s a must. The amount could vary widely.
• Escrowing taxes and insurance. Your lender may require you to escrow an amount equal to up to 12 months of taxes and insurance. This amount can change from year to year – the amount you pay for insurance can vary, and so can the amount of property taxes imposed by your local governments.
• Homeowners Association dues. Again, there’s no getting out of this one. If you’re moving into a subdivision, you’ll almost certainly have to pay dues to your Homeowners Association. The association will take care of such things as maintaining common areas. You should be able to prorate the amount you pay.
Don’t let this list of charges scare you into running away from purchasing a home. There are still substantial tax benefits, as well as the psychological boost you’ll get from achieving your dream of homeownership. But go into the process with your eyes wide open. Ask your real estate agent and your lender what kind of charges will show up at closing, and see whether you can negotiate waivers or reductions or even having the seller pay for some costs. You never know until you ask.
This article was contributed by Carrie Van Brunt-Wiley, Editor of the HomeInsurance.com blog. Carrie has been writing insurance news and consumer information for HomeInsurance.com since 2008. She graduated from the University of North Carolina in Wilmington in 2005 with a B.A. in Professional Writing and Journalism.