After years of hard work and careful planning, you are finally ready to own a home. You think you have your budget all planned out. But are you truly prepared?
Picture this: you find the perfect property after months of searching, and it looks within budget. You start the buying process but soon realize that your budget doesn’t account for all fees! Before you know it, your dream home isn’t as affordable as it initially seemed.
You may take out additional loans to cover those fees if you’re unlucky. Or you might find yourself in the awkward position of asking family for financial help.
Neither situation is desirable. Luckily, you don’t need to put yourself in either one. Vantegic has assisted over 900 families become homeowners. Our familiarity with the home-buying process has helped us compile this list of fees when buying a house so that you can be as prepared as possible when it’s time to sign.
It’s your first home purchase. Where to begin?
Preparing to buy your first home is overwhelming for many. As if saving a down payment isn’t hard enough, buyers must also learn tons of new terminology to navigate the buying process confidently. Because buying property is so exciting, sometimes even the most basic fees get overlooked! Before discussing lesser-known fees, use the list below to refresh your knowledge of standard charges.
Fee #1: Down Payment
The down payment is the most universally recognized fee in the homebuying process. It ranges from 3% to 20% of the desired home’s listing price in most cases.
Your down payment will vary per the value of the home you wish to purchase. It also changes depending on the type of loan you go with. For example, FHA loans typically allow buyers with lower credit to make a minimum down payment of 3.5%. By comparison, conventional loans usually require higher credit scores to secure. They also generally need larger down payments.
Your down payment is the most significant upfront expense when buying a home. The size of your down payment varies with your needs. But in all cases, it shows the bank that the buyer can afford a mortgage.
Fee #2: Home Inspection Fee
A home inspection is necessary, although not required by law. Inspections occur when a professional searches a property for possible damage that could influence a home’s value. In Colorado, the process usually ranges from $250 to $600, depending on the provider.
It’s often tempting for buyers to opt for the home inspector with the lowest prices. Avoid doing so if at all possible. Inexperienced home inspectors may help save a few hundred dollars short term. However, they could miss damage that requires costly repair upon moving in.
Shop around before making a decision! An experienced home inspector who finds severe damage can save you thousands of dollars in long-term repairs. You may even recover the inspection price if any discovered damages get you a better deal!
Fee #3: Appraisal Fee
During a home appraisal, a professional appraiser visits a property to determine its fair market value.
Home appraisals help secure property investments for lenders and buyers alike. They show that a home’s price reflects its actual value. In most cases, buyers pay the appraisal fee. In Colorado, it usually varies from $500 to $1000.
Are there any other fees to consider?
Yes! Most buyers pay the down payment, home inspection, and appraisal fee upfront. Afterward, they still need to consider closing costs.
Closing costs refer to all fees necessary to complete a real estate transaction. They include title fees, transfer taxes, and, when applicable, HOA fees.
Closing costs tend to shock buyers because sellers don’t include them in the listing price, but paying them off means your home is yours! Learn more about the fees associated with closing costs below.
Closing Fee #1: EMD
In addition to the closing costs above, buyers also pay an Earnest Money Deposit or EMD. Paying an EMD shows sellers that buyers are serious about obtaining property. They usually vary from 1.5% to 3% of a home’s sales price.
As the name implies, an EMD is a deposit paid upfront when submitting a purchase offer. At closing, the EMD reduces the buyer’s overall payment because it applies to all remaining costs.
Closing Fee #2: Title Insurance
When buying property, title insurance is vital to protect yourself from any issues with ownership.
Imagine purchasing a beautiful estate, then learning the seller forged some of the paperwork! You’re now on the hook for their misdoings!
Title insurance protects buyers from situations like this one. It typically costs about $2000.
Closing Fee #3: Property Taxes
As with most other purchases, homeowners must pay taxes after buying property. The value of your home determines how much you pay in property taxes.
Property taxes are due annually, so it’s important to remember that this expense is ongoing. As your property rises in value, so does your tax.
Closing Fee #4: Homeowners Insurance
Like property taxes, homeowners insurance is an ongoing expense. It is also tied to your property’s value.
Americans pay a national average of about $1,200 per year in home insurance premiums. Homeowners can contract varying degrees of coverage depending on which hazards are present.
Homeowners insurance helps you recover your home in a disaster or accident.
So, how do I budget for all closing costs?
At the start of your home buying journey, it can be challenging to determine an exact budget. After all, you may still be searching for houses!
The most important consideration is your overall price range. As a general rule, assume your closing costs will be 5% of the overall sales price. With 5% saved in addition to your down payment, you are ready to buy a home!
As you budget for your next home purchase, be sure to account for every factor listed above. Understanding the required fees when buying a home primes purchasers for financial success in the future. It also makes the buying process less stressful, so you can focus on what matters most: finding the perfect home for you and your family.