Hidden Costs Of Buying Your First Home

Written by Posted On Monday, 17 December 2018 14:27
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Buying your first home is an exciting prospect, particularly because it gets you away from the endless financial waste of renting. However, many first-time home buyers jump into the process without becoming familiar with the intricacies of buying real estate. This means they're unprepared for the hidden, yet necessary, costs that can inflate the actual purchase price of the home.

 

Loan Origination Fee

This is a fancy term that simply means you have to pay a processing fee to your lender. Your lender will expend time and resources to process your mortgage and issue the loan, which isn't something they attribute to the cost of doing business. Instead, the burden of paying for this processing is placed upon the borrower and it's not an insignificant cost. While the origination fee varies from lender to lender, you should expect to pay a fee equivalent to 1% of your total mortgage.

 

Real Estate Agent's Fee

You might assume real estate agents are paid by the seller and take a percentage of the home's sale price. While that may be true, hiring your own agent will also cost money, particularly when that agent isn't the listing agent for the property you buy. When you see the sale agreement, you'll likely see this fee tacked on to the total cost of buying your new home. Depending on your confidence that you can find your ideal home and negotiate a fair price, you may not need to hire an agent of your own. In that case, this fee can be avoided.

 

Homeowner's Insurance

If you're relying on a mortgage to buy your home, your lender will require you to obtain homeowners insurance. Even if you're paying for the home out of your own savings, obtaining homeowners insurance is still a wise decision. The best option in buying insurance is to get a policy that will reimburse you for the cost of replacing damaged or stolen items rather than obtaining a policy that will only pay out the depreciated value of the items. While premiums vary by insurer, the Insurance Information Institute estimates that the average policy costs $1,132 per year.

 

Home Inspection

Before you start planning out where you'll put your new latex bed and other furnishings, you still have to get through the home inspection. Again, this is one of those expenses lenders require, but you should have done anyway. It helps you identify problems with the home, so you can make a better informed home buying decision. The home inspector looks specifically for major defects, such as structural problems, roof damage, and problems with the HVAC system. The inspection carries a fee between $300 and $500, which you will be responsible for paying even if you decide not to buy the home.

 

Appraisal Fee

Your lender will require an appraisal, before they will approve the loan. While the appraisal fee can cost as much as $425, it can actually help you in the long run. The appraisal is intended to ensure the seller is asking a fair price for the home. If the appraisal values the home at less than the asking price, the lender will likely force the seller to lower the sale price accordingly. If the seller refuses, they'll probably lose the sale altogether, which is why most sellers comply.

 

Title Search

This is another necessary process that's a part of the home buying process, because it ensures there are no liens or claims against the property. Additionally, you'll be required to pay a one-time premium for title insurance as an added protection against future claims. While these services can cost $400 or more, they're necessary for your own protection and for the lender's peace of mind.

 

Conclusion

As these items suggest, you should have at least $2,000 put away to cover additional fees above and beyond the money you pay out for the home's down payment. There may be more costs associated with the home buying process as well, depending on the laws and market in your area. While some sellers will offer to help with closing costs, you should really be prepared to cover these costs yourself, so you're not caught unprepared for the home buying process.

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