What You Need to Know: Closing Costs of Buying a House and Other Expenses

You’ve been saving up for years to buy your first house and you’re ready to get started. However, you may not know about the hidden closing costs of buying a house and they might come as an unpleasant surprise. If you’re ready to learn more about closing costs and other expenses when buying your first house, get started here with the team at Cash Factory USA.

What Are Closing Costs?

Most people know and understand the monthly payment that comes with your mortgage, there are also other costs that include fees and expenses which are important to consider.  Most of the closing costs when buying a house fall on the buyer, though sellers do have some fees to pay as well — like real estate commission fees.

How Much Are Closing Costs?

Closing costs vary depending on the value of the home, but you can typically expect to spend between 2-5% of the total loan amount just on fees. If your loan is for $500,000, you could pay anywhere between $10,000 and $25,000 in addition to the cost of the home. In rare cases, you can find a lender willing to give you better rates with closing costs of only 0.5% on your loan amount.

You can calculate these in advance as a one time expense and save specifically for closing costs to pay them out of pocket.  If you need to, you can also finance your closing costs by adding them to your loan. The downside of adding house buying closing costs into the main loan is that you end up paying interest on that amount for the life of your mortgage.

Lowering Expenses When Buying a House

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You don’t want to pay tons of extra money on closing costs because you’re already spending hundreds of thousands of dollars on a new home, so negotiation and comparison shopping is key. Explore state and city low-interest offers and bring up closing costs to any mortgage broker or lender to see what kind of deal they’ll give you. The lender is required to discuss your closing costs for buying a house within your loan estimate and closing disclosure documents, allowing you to ask any questions about issues you don’t understand.

Other Costs When Buying a House | Property-Related Fees

House buying closing costs aren’t the only fees you can expect to pay. Here are a few other expenses to prepare for:

Appraisal Fees

Lenders verify the amount you need for a loan by conducting their own appraisal on a property. They want to be sure that they can recoup their costs if you default on your loan. Appraisal fees vary between states, cities, and vendors, but it’s safe to assume that you’ll be on the hook for a few hundred dollars.

Home Inspection

Your inspection is another expense to consider when buying a house. These are required, especially if you’re getting a government mortgage like an FHA loan from the Federal Housing Administration. Your lender wants to guarantee the conditions of the home, ensuring that it’s structurally sound and in good shape. Home inspection fees also vary by region but average out between $300 and $500.

Loan Related Fees

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Similar to closing costs when buying a house, other loan-related expenses include application, assumption, attorney, and loan origination fees.

Application Fee

This is the amount you pay for processing a new loan. It covers credit checks and administrative expenses for the lender. Application fees vary depending on the amount of work required for your application.

Assumption Fee 

Some sellers still owe money on their houses and you can assume the remaining balance of the loan. There is a fee associated with the transfer and it’s based on the value of the balance.

Attorney Fees

In certain states, you will need an attorney present when you close on your home. You pay the attorney’s hourly rate.

Loan Origination Fee

This type of fee is also known as an administrative or underwriting fee. It is a charge from the lender for evaluating and preparing your mortgage loan. Your payment will cover the costs of notary fees, document preparation, and the lender’s attorney costs. Sometimes, the application fee is included here.

Broker Fees

Some people choose to work with mortgage brokers instead of directly with banks or other lenders. A broker generally charges a commission based on the percentage of the loan amount. You can discuss a broker’s fees before choosing to work with them.

What Are Discount Points?

In an attempt to lower closing costs when buying a house, some people choose to pay discount points. These help you reduce the interest rate that you pay over the life of your loan. One point is equal to 1% of the loan amount.

Mortgage Insurance Costs

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Here are a few more costs to pay attention to in regards to the mortgage.

Mortgage Insurance Application Fee

When making a down payment on your home, most lenders require at least 20% of the house to be paid cash before they give you a loan. In cases where you pay less than that required amount, you may have to get private mortgage insurance to protect the lender in case you default. You’re responsible for the insurance application fee.

FHA, VA, & USDA Fees

Some people choose to get loans through government programs to lower the interest rate or get a loan when they have bad credit. There are certain monthly insurance premiums you must pay to the Federal Housing Administration, Department of Veterans Affairs, or the U.S. Department of Agriculture.

Property Taxes & Other Annual Expenses

You’ve managed to buy a house and deal with closing costs, now you have to look at the continuing costs of ownership, including property taxes, assessments, homeowners insurance, and title fees.

Property Taxes

Property taxes are generally paid twice yearly. They are based on the assessed value of your home and can change according to the determination of the municipal government. The basis of your property tax is decided by a yearly assessment of the home values in your area.

Annual Assessments for HOA

If you’re part of a homeowners association, there is a type of annual assessment these management organizations conduct to determine your monthly fees for the coming year. Your HOA fees may go up, go down, or stay the same.

Homeowners Insurance

Once you buy a home, we recommend that you purchase homeowners insurance to cover your property in case of damage or vandalism. For people with an HOA, this insurance is included in their monthly fees. In cases of independent homeownership, you’ll pay a monthly premium to the insurance company of your choice to protect your home.

Title Fees

A title search is meant to protect the home buyer from any issues with the ownership of the house. You don’t want to pay closing costs when buying a house only to find out after that there are outstanding claims or liens on the property. Sometimes, title searches can be pretty labor-intensive so search fees can get up to $200.

Home Buying Time

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Armed with more knowledge about potential fees and additional closing costs when buying a house, you now know what questions to ask when discussing loans with your lender. Make sure you get everything in writing and refer to it frequently to ensure you’re protected. Many of the documents — like the Loan Estimate — are legally binding, so make sure you read everything carefully.

Please note these articles contain opinions from the Cash Factory Team.  You should always check with your financial experts before making decisions on your financial future.

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