Buying a house is complicated. The moment you decide to take the step from renting to owning, the challenge begins. You go through your credit report, fixing your credit score so you can take on a mortgage. You browse through different listing sites in hopes that by looking at those fancy photos, you will have a better understanding as to how big of a house you want and what features and amenities you will not be able to live without. And then, one open house after another, you feel like this never ends.
Finally, after too many open houses, you find the one. You think to yourself, “this is happening,” and with your broker’s help, you and the seller agree to a final sale price. All of sudden, you realize something – what’s up with all the fees? The mortgage origination fee, the inspection fee, survey fee…. You are getting overwhelmed, and it seems that the list just goes on and on.
First-time homebuyers often overlook closing fees when buying a home. However, these fees are essential for you to close a deal. The transaction will not go through if these fees are not covered. Therefore, while you focus on saving money for the 20% down payment, you also need to budget for closing fees. You might wonder, then, what these fees are. Rest assured! We at RealtyHop have put together a list of fees you should expect at closing. Let’s take a look.
#1: Origination Fee
Some lenders split the origination fee into separate fees, such as courier/delivery fee, escrow fee, appraisal costs, administrative fees, a credit check fee, and processing fees, etc. To make it simple, the origination fee is the fee that goes to the lender for originating the loan. It is usually 1% to 2% of your total loan amount.
#2: Title Fees
A huge portion of the closing fees actually goes towards the title. Why? Well, your title to the property is the most important thing you should care about. The last thing you’d want is to deal with a person who claim ownership of your property out of nowhere.
#3: Survey Fees
This fee goes to the survey company which verifies the property lines of the property you are about to purchase. A land survey is very important, especially if the property comprises lots of lands. It helps resolve and avoid boundary disputes and gives you a better idea of how big the plot actually is. You can even negotiate down the price if the parcel turns out to be smaller than what the seller advertises.
#4: Attorney Fees
Having an attorney by your side when you close on a house can be quite helpful. Think about all the paperwork and the final purchase agreement between you and the seller. While you get drown in the sea of legal terms, the attorney can easily take care of everything. A real estate lawyer is also trained to spot potential issues, and so to ensure a smooth closing, you should expect to hire an attorney and pay the fees.
#5: Recording Fees
Recording fees go the local recording office where your property is located. All real estate transactions, by law, are public information. When a transfer of ownership occurs, it needs to be documented in the public records.
#6: Property Tax
In case you are new to real estate – property tax liens are superior to mortgage liens. In plain language, unpaid state or local property taxes take priority over all other liens. In the event of a foreclosure, your lender will not be compensated for the loss unless the unpaid property taxes are cleared. No one wants to take back a property that has a lot of uncleared debt. Therefore, your lender might require that you pay any property tax due within 60 days in advance. They might even set up an escrow account, take your property tax payments along with your mortgage repayments, and submit the tax payments for you to avoid potential issues.
#7: Inspection Fee
Remember, you must not skip the inspection, no matter how perfect or new the house is. Chances are that the inspector will identify problems that can potentially cost you a fortune. Instead of fixing these issues yourself, you should ask the seller to do the repairs, pay for the repairs, or use it in your advantage to negotiate a lower price.
In addition to what’s mentioned above, keep in mind that you also need to purchase a homeowner’s insurance, which in most cases is a must if you have a mortgage on the house. Flood premium is also very common if you are in a high-risk flood area. As long as you own a house, you are required to have proper insurance policies in place.
Buying a house is perhaps the biggest decision we can make in our lives. It requires lots of commitment, emotionally and financially. We hope that by listing the most common closing fees, we can better prepare you for homeownership. If you are a real estate newbie, remember to check some of our other blog posts to learn more about buying and selling!