Buying your first home can raise several questions in your mind about how much you really have to bring to the table when it comes time to close. You never want to have any hidden costs, and being surprised at signing is no way to complete a transaction.
Below are 7 fees to expect when you are purchasing a property using financing (and some are required even if paying cash!).
1) Title Fees: This includes title insurances and the fees the title company charges to process the transaction. Make sure your Real Estate Agent asks for competitive rates from the title company as well as a detailed breakdown of these fees.
2) Property Taxes: Property taxes are paid in arrears. So depending on the month you close, and what time of the month, property taxes are prorated based on the time you will be owning the property, and then a credit will be given to the seller. If your escrow account is setup properly, property taxes are paid by escrow, each month, as part of your mortgage payment.
3) Home Owners Insurance: When financing a loan, the lender will require Homeowner’s insurance. Even if you are paying cash, we always recommend purchasing home owners insurance. You will pay 1 year prepaid at close of escrow, and then each year, this amount will come out of your escrow account and be paid on your behalf (if the escrow account is setup correctly).
4) Prepaid Interest: If you are financing the property, you will be required to pay your interest on the money borrowed for them month. So depending on the time of month your loan closes, you may be responsible for a few days or the majority of the month of interest. Remember, your full mortgage payment skips a month, so if you close in February, you don’t pay an actual mortgage payment until April 1st.
5) Mortgage Insurance (PMI): Depending on your loan type, and how much you are putting down, you may have pay mortgage insurance premium that you have to pad your escrow account with. You may even have a lump sum of prepaid mortgage insurance, which could then wipe out the monthly payments.
6) Loan/Lender Fees: These fees are what will be paid to the lender processing your loan. You will receive a breakdown of these fees in the beginning of the process, by requesting a Good Faith Estimate. In addition to the lender application fees, will include the origination fees, as well as any “points” you decide to buy down. A borrower may buy down their interest rate, by points. One point is equal to 1% of the loan amount.
7) Home Owners Association Fees: HOA fees include transfer fees, disclosure fees, and document fees. During the contract negotiations, your Real Estate Agent should inform you of the fees you are agreeing to pay. Some HOA’s require a reserve of a few months prior to closing, so there may be an added expense at closing.
All of these costs should be discussed up front. When working with Angels RE, you may receive a buyers book that outlines these costs, and the title company can work up a cost analysis net sheet to prepare you for these costs. In many situations, the buyer may ask for closing costs to be paid by the seller. This is all part of negotiations up front and just another reason why working with Angels RE for your next Real Estate Transaction is the right choice – we are all full time professionals, in the business and industry all day everyday! Here are some other great resources for home buyers if you have any additional questions as well!