Last Updated on July 8, 2022 by Luke Feldbrugge
You’ve been saving to buy a new home, but what will it actually cost to buy a house you want? You have your down payment fund built up, and you’re pre-approved. It is our duty to inform you there are many fees, taxes and up front costs you’ll need to be prepared to pay – on top of your down payment. When you’re saving up to buy your dream home, these additional costs to buy a house.
Some of these costs will apply to the house you buy, and some won’t. It all depends on what state you’re buying a house in, what type of loan you’re using, how much you’re paying for your down payment, and several other individual factors. However, this list is fairly typical for most buyers. Let’s start with the costs associated with your closing, or when the house officially becomes yours.
Closing Fees are a Common Cost to Buy a House
Application Fee: In order to start your loan application, you’ll need to pay your lender to process your application.
Attorney Fee: In some states, an attorney is required to conduct real estate transactions. They will require a fee to assist with the transaction.
Closing Fee or Escrow Fee: Paid to the title company, escrow company or attorney for actually conducting the closing. This is different than the attorney and application fees.
Courier Fee: Cost of transporting documents to complete the loan transaction. Most mortgage offices use electronic document systems now, but there is a possibility for a physical signature.
Credit Report Fee: Your loan originator will need to pull your credit score to determine your eligibility for a loan. This pays for the cost to pull the report.
Life of Loan FEMA Flood Determination Fee: Some houses are in low-lying or flood-prone areas, known as flood zones. Because they have a higher chance of damage due to floods, they can be harder to insure. It’s possible your house could go into default if a flood happens and you are unable to live in your home anymore. If this is common in your area, you might have to pay to determine if the house you’re buying is at risk.
Mortgage Rate Discount Points: There is a fee that you have to pay in order to borrow money in the form of a mortgage. That fee is called an interest rate. If you want to have a lower interest rate, you can “buy points” or “buy down the rate”. The cost of this depends on the interest rate, which changes daily, and how many points you want to purchase. This can be in the hundreds to thousands of dollars. It is not required to buy any mortgage rate points.
Origination Fee: This covers the lender’s administrative costs.
Recording Fee: This fee covers the administration cost to your local public lands records office.
Survey Fee: In some states, it is a requirement that you survey the property when you purchase it. Survey involves looking at the property’s boundaries and making sure all buildings, driveways, fences, and other parts of the property exist where the records of the land exist. This also helps you understand where your property lines are and what your property contains.
Title Search Fee: This fee to title company is for doing a search of the property’s records, and ensuring no one else has a claim to the property.
Underwriting Fee: Each person applying for a mortgage has a different financial background and makeup. Because of this, there is not really a formula to approve or deny someone for a mortgage; they look at each application individually. An underwriting fee goes to the lender for looking at all your financial documents and assessing if they want to give your a loan or not.
VA Funding Fee: If you’re using a VA loan, you may need to pay a VA funding fee at closing. The percentage depends on your type of service and the amount of your down payment. While you might need to pay this at your closing, you actually may be able to add this cost to your loan amount, and be able to pay it with your mortgage payment each month. This is called “rolling” a fee into your mortgage.
Insurance Costs to Buy a House
Because a house is such an expensive purchase, both you and the mortgage lender want to make sure the house is safe and is habitable until you move and sell it, or until the house is paid off. There are multiple types of insurances you’ll need to have in place in order to conduct your closing.
Homeowners’ Insurance Policy: As soon as your offer is accepted, you should start looking at homeowners insurance policies. You’ll need to show proof of coverage at the property at closing, or your lender might not loan you the money. Homeowners insurance is just like renters insurance in the sense that it covers the things inside the house. But, because you’ll own the property now, it also covers external items on your house, like roof or siding damage.
Lender Title Insurance (Loan Policy): Confirms you own the home and protects the lender if there is a problem with the title.
Owner’s Title Insurance: This is an optional cost. Because you ran a title search on the property, this may not be needed. But, if someone comes forward with documentation that they own the property that didn’t show up in your title search, this would help protect you.
Private Mortgage Insurance (PMI): Private Mortgage Insurance is required a required cost to buy a house if you put less than 20% down payment with a conventional home loan. PMI exists as extra insurance to the lender that you will pay your mortgage payments. Once you’ve paid for 20% of the home’s value through your mortgage payment, you can remove PMI from your payments. If you have to pay PMI, you can roll this into your monthly mortgage payment. However, you may need to pay for the first month’s PMI upfront at closing.
FHA Up-Front MIP: This is a fee similar to PMI, but is only a cost to buy a house if you’re using an FHA Loan. This fee can also be rolled into your mortgage. The up-front MIP will be 1.75% of the total value of your loan (purchase price minus down payment).
Appraisal and Inspection Costs
Home Appraisal: A home appraisal must be conducted to determine the value of your home. This is needed so that the lender can lend you the amount of money you need for the mortgage, and so that you can get the right homeowners insurance coverage.
Home Inspection: Home inspections help buyers identify problems with the property they are considering buying. A home inspection when buying a house costs anywhere from a few hundred dollars to a thousand or more, depending on the size and type of property, where it is located and how much time the inspector spends on the job. The good news is that some lenders roll the inspection in as part of your closing fees.
Depending on the age of a home, an additional cost to buy a house may be to conduct a lead-based paint inspection for an additional fee. Some parts of the country also have a higher aptitude for Radon, an odorless, colorless, tasteless gas that can contribute to health issues like lung cancer. This is an optional test that be conducted by your inspector or a special Radon mitigation company. Again, this would be for an additional fee.
Pest Inspection: Your inspection might show that there are issues with the house like dry rot or insects and general pests. Certain government loans actually require an inspection specifically for bugs and insects and structural issues like dry rot to receive your loan. If these issues are found, you will need to pay for treatment or repairs before you move in.
Interest, Taxes and Other Costs
Escrow Deposit: You may be asked to pay a few months of property tax and mortgage insurance payments at closing. Any earnest money you make in your offer will also go into your escrow account.
Prepaid Interest: This is interest that accrues between closing and the date of your first mortgage payment. Once your closing date is set, you’ll be given an amount to pay.
Property Tax: Lenders typically want any taxes due within 60 days of your home purchase to be paid at closing. In some states, you can also choose to pay your taxes from your escrow account or by yourself each month.
Transfer Tax: Tax paid when the title passes from seller to buyer.
Bonus Money Opportunities
First Month’s Mortgage Payment: Because your first month’s mortgage payment is wrapped up in your escrow account, and mortgage payments are due on the first of the month, there is typically a month or so of overlap where you don’t have to “pay” a mortgage payment. Lenders will start collecting payments on “the first day of the month after you close”, known as the closing lag. It takes about 30 days for all documents and monies to be transferred from the buyer seller. If you close on a house on August 30, for example, your first payment would be due October 1. That means you basically get to live in the home mortgage-free for one month.
Hero Rewards: When you buy a home with a Homes for Heroes real estate agent, you’ll get Hero Rewards savings after you close to help with the cost to buy a house. This is just our way of saying thank you for your service to your community. Hero Rewards come as cash in the amount of .07% of your home’s purchase price. On average, our heroes receive $3,000! This is money back in your pocket after paying for all the above costs. Sign up now and let us connect you with a Homes for Heroes real estate agent and mortgage specialist and start saving you money!