What Charges am I Going to Incur?
Not everyone is aware of the various charges that they may have to pay during the home buying process. Attorney fees, appraisal fees and more can add up to thousands of dollars. Some fees may be paid by the seller, but in large part, buyers will have to pay for a number of fees when buying a home. Here’s a look at some of the most common fees.
The Good News About Mortgage Fees
Fortunately most fees must be disclosed by lenders within three days of applying for financing. these fees are explained on a form that is called the HUD-1 form and is governed by rules called “RESPA" which is Real Estate Settlement Procedures Act. Read more about how RESPA protects your rights as a home buyer and potential borrower.
Understanding Mortgage Points
For those who have never taken a mortgage out, there may be some confusion about mortgage points. Points are fees that are paid to either the mortgage lender or to a mortgage broker. These fees may be for one or more purposes including (a) interest rate locking or (b) to pay the originator. Those who are considering purchasing a home should understand how mortgage points will impact their ho me purchase.
Credit Reports: Cost and Importance
Once you have applied for a mortgage, your lender will do a consolidated credit report. In most cases, you will be charged the fee that they incur to pull this report. Consolidated credit reports are a compilation of your reports from the major three credit bureaus. The costs may not be more than what the lender is being charged. That aside, your credit score may change other costs associated with purchasing a home including your interest rate.
What Closing Costs Can be Negotiated?
Purchasing a home and refinancing an existing mortgage have specific fees associated with them. However, not all of these fees are “ground in granite", in some cases, you may be able to negotiate some of the fees. Appraisal and credit report fees may not be negotiable but that does not mean that other fees cannot be negotiated. Make sure you know when it is appropriate to try to reduce your closing costs.
Understanding Realtors Fees
There are often two agents involved in a real estate purchase, the buyer’s agent and the seller’s agent. Each of these Realtor’s will earn money from the party they are representing during a home sale and purchase. However, in many cases, these fees are paid to a single company and disbursed between the company and the agents involved. Make sure you understand how Realtors fees work in the home buying process.
Who Pays the Fees of a Realtor?
Fortunately, Realtor fees are one aspect of the home buying process that may be negotiable. In most cases, each agent will have worked with the party they are representing to get the best possible deal for each party involved. When it comes down to paying the Realtor’s fees, there may be an agreement to split the costs or the costs may be paid entirely by the seller. Review this important information about paying fees of a Realtor.
Hidden Costs: Saving Money by Not Having a Home Inspection
Many states and jurisdictions do not require the buyer or the seller to have a home inspection done before completing a purchase. It is important to note however, that some lenders may not provide financing without an inspection. For home buyers who live in one of the states that does not require an inspection, it’s important to understand what types of problems you could encounter later if you decide to forgo an inspection. Don’t try to save money on your home purchase without understanding the downside of not having an inspection.
What About Appraisals and Market Value? Appraisals Matter!
While it may look great on paper, many real estate professionals base the market value of a home on factors that may or may not accurately reflect the value. Market valuations are typically provided free of charge to those who are selling a home and are based loosely on information that is available in public records. An appraisal on the other hand involves a professionally trained individual reviewing the home, checking out the structure of the home for defects and inspecting (surface only) plumbing and wiring for “age". While your appraisal may cost upwards of $500 (depending on the market) it may not be a good idea to sign a purchase and sale agreement prior to getting the real appraised value. Read more about the variances in property values and why appraisals are so important.
New Build: Perk Fees and Other Critical Fees
Imagine purchasing a piece of land, hiring a contractor and placing a large deposit and finding out later that the land is not stable enough to build the home of your dreams. For those who are considering having their home built, versus purchasing an existing home, it is important to understand what fees you may incur. One of the most important tests that will be run during the process of purchasing a piece of land is a perk test. Understand the various expenses involved in having your new home built versus buying one outright.
Added Costs of Home Purchases: Land Surveys
Nearly all home purchases will involve a property survey. The reason for surveys is to ensure that the home buyer is aware of their property lines. Many states have “eminent domain" laws that allow abutments on property for purposes of right-of-way. Home surveys ensure that the property line and any abutments are clearly laid out in the most recent property deed.
What is Personal Mortgage Insurance: Do I Need It?
Personal mortgage insurance (PMI) is typically required on all loans where the buyer puts down less than 20% of the purchase price. This is a premium that borrowers pay to help the lender minimize their risk in the event of default. Understanding PMI and how it is calculated can help make sure that you understand the costs associated with buying your home.
Understanding the Cost of Title Insurance
One of the most overlooked parts of home purchasing is title insurance. Many home buyers believe that if they pay the title insurance premium at closing (which they will) that this covers them in the event of any title faults. However, this is not likely to be the case as the policies that are paid at closing are lenders title policies. Make sure that when you are purchasing a home that you understand the fees associated with and the coverage offered by title insurance.
Purchasing Homeowner's Insurance
Most of us who purchase a home understand that we have to maintain an insurance policy. What isn’t always clear however is what portion of the homeowner’s insurance policy must be provided up front at the time of closing on a new home purchase. In most cases, your insurance company (or your lender) will require that one years worth of premiums be paid up front at the time of closing. Make sure you understand what your policy covers and what coverage you may need.
Considering a Flood Insurance Policy
There are certain areas of the country that have been determined to be in an area designated as a “flood zone". Those who are purchasing a home in any area that is designated in this manner must be prepared to pay for a flood insurance policy. However, even if you do not live in a flood zone, there are reasons why you may want to consider a flood insurance policy. The small amount of cost could save you thousands of dollars in the long run.