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What Other Costs Come With Purchasing a Home?

What Other Costs Come With Purchasing a Home?

May 5, 2022

Buying a house is an exciting process. However, it can be overwhelming. Financially, most people focus on saving for a down payment and being able to afford their monthly mortgage payments. 

But the down payment is just one of the many costs you’ll need to budget for. This comprehensive guide outlines all the fees associated with buying a house, from realtor fees to home inspection costs. 

List of all fees associated with buying a house

To understand how much you need to buy a house in your area, you first need to look at the real estate market to get a rough idea of what you can expect to spend. Then, start preparing for closing costs and other expenses. 

If you’re not aware of these costs ahead of time, they can feel like hidden fees when buying a home. But these expenses are a routine part of buying a house — buyers simply need to include them in their budget. 

This section goes over the key costs to consider when buying a home. 

Application fee

The application fee is charged by some mortgage lenders as a fee to process your initial application. Some providers waive this fee or may refund it if you successfully take out a mortgage through the lender. In general, application fees can range from $0 to $500, depending on the lender. There may also be a credit reporting fee (usually around $25). 

Appraisal fees

The appraisal fee is paid to a real estate expert to come out and assess the fair market value of the home. The bank that issues the mortgage needs to know how much the house is worth so that they can calculate how much they are willing to loan. Appraisal fees for single-family homes are generally in the $300 to $400 range. 

Attorney/legal fees

Legal experts are required to conduct title research, draft a title deed, and prepare mortgage documents. Fees for attorneys and/or legal help are usually a minimum of $500, but can range into several thousand dollars depending on the situation and your area. Not every state requires a real estate attorney, here is a list of those that do. 

Down payment

The down payment is the amount of money you pay towards the principal balance of your home (the rest you pay for with a mortgage). It is the most significant upfront cost. 

A down payment is typically an absolute minimum of 3% of the value of the home ($12,000 on a $400,000 home), but many buyers aim for the traditional goal of 20% down ($80,000 on a $400,000 home). 

A higher down payment can result in lower monthly payments, and/or a lower mortgage interest rate. 

Escrow funds

Many lenders require that you put a few months of expenses into an escrow account. This account is then used by your lender to pay for property taxes, premiums, homeowner’s insurance, and mortgage insurance. The requirement varies but is usually around two months of these expenses. 

Home inspection costs

A home inspection may not be required but it is strongly recommended. A home inspector will come out to the property to inspect it for damage, major repairs, leaks, etc. You can expect home inspection costs to range from $300 to $450

Homeowner’s insurance

Homeowner’s insurance reimburses you for certain types of damage to your home, like fire. A general rule of thumb is that homeowner’s insurance costs around $35 per month for every $100,000 of home value. So if your home costs $400,000, you may expect to pay around $140 per month. Most lenders require you to prepay for a certain amount of homeowner’s insurance or to put that money in an escrow account. One year of premiums is a common requirement. 

Title insurance

There are two types of title insurance: 

  • Lender’s title insurance protects the bank if you lose your claim to the title. It costs up to $875, but it’s a one-time fee. This is typically required.

  • Owner’s title insurance protects you in future legal disputes relating to the house title. It costs around 0.5% to 1% of the property value as a one-time fee. This is typically optional. 

Origination fee

The loan origination fee is charged by the lender to underwrite and issue your mortgage. This fee is typically between 0.5% and 1% of the mortgage amount ($2,000 to $4,000 on a $400,000 mortgage). 

Recording fee

Recording fees are paid to local governments to update public land ownership records. This costs around $125. 

Other fees

Other fees are certainly possible, but less common. For instance, some states require a land survey before buying or selling a property. And if you’re buying an older home, you may need to pay for a lead-based paint inspection. Speak with your mortgage lender and your real estate agent to stay aware of all the potential costs associated with buying a house. 

When do these costs need to be paid? 

For the most part, the fees associated with buying a house must be paid for before or during the home purchase process. 

  • Early costs: Some costs will be due before you actually purchase the home. This could include mortgage application fees, home inspection fees and more.

  • Closing costs: Many costs are what are known as “closing costs.” These costs are due at or shortly before the closing date of the home sale. This could include appraisal fees, attorney fees and more. 

  • Prepaid ongoing costs: Owning a home has ongoing costs as well. This includes home insurance, property taxes and more. Some of these costs may need to be prepaid at the time of closing (these are often included in closing costs). 

  • Ongoing costs: You’ll also need to budget for various ongoing costs, like utilities, property taxes, home insurance and maintenance. 

Fees for buying a house: How much can I expect to pay in total?

In total, closing costs are generally 3-6% of the value of the home. On a $400,000 home, that’s $12,000 to $24,000 in total closing costs. 

Be sure to account for closing costs when deciding how much to save before buying a house

However, the costs vary depending on your area and the mortgage lender. Ask your lender for a list of all fees associated with buying a house using their programs. 

If you can’t afford the closing costs and the down payment, you may wish to look into first-time homebuyer programs in your area. 

Is high-interest debt holding you back from your goals of owning a home? Paying off credit card debt should be a top priority — and Tally† may be able to help. Tally works by helping qualifying applicants consolidate credit card balances to a lower interest rate line of credit. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.