Ready to buy a house? Congratulations! You’ve reached peak adulting. But if you think buying a house is just putting down a 10%-20% down payment (i.e. your entire life’s savings since the day you were born), you’re in a for a rude awakening.
Closing Costs and Fees
Getting a mortgage is expensive. There’s the down payment – which most people prepare for – and then there are closing costs and fees. Before you can step foot in your new home, you’ll need to put even more money towards closing costs, which may include:
- Origination fees: The fee your lender charges for processing your loan application.
- Title searches: The fee for searching public records of the property you’re buying.
- Title insurance: Protects the investment.
- Appraisal fees: For having an appraiser create an appraisal report for the property. An appraisal is the true, unbiased value of the property.
- Taxes: You may have to pay taxes on the transfer of the property from the previous owner to you.
- Attorney fees: You may have to pay fees for hiring an attorney to prepare and record documents.
- Surveys: If you have to check the property boundaries, you’ll have to pay survey fees.
- Deed-recording fees: To cover the cost of recording the new mortgage and deed.
- Property taxes: Usually six months of county property taxes.
- Homeowners’ insurance: Most lenders require buyers to pay for the entire first year of homeowner’s insurance upfront and in full.
There may be other fees that you’ll have to pay. Your lender will clearly outline all of the fees that you have to pay and explain each one before closing.
How much are closing costs? Expect to pay 2-5% of the home’s purchase price. So, if the house is $200,000, you may pay between $4,000 and $10,000. You may be able to roll these costs into your loan, but most buyers have to pay these costs out of pocket. Closing costs are one of the biggest things that buyers overlook, and they can be almost as high as the down payment itself.
Repairs or Upgrades
Is the home move-in ready? If not, you’ll have to think about repair costs. Even if the house is technically ready for move-in, there may be things you want to change – like that 70’s green carpet in the bedroom – before you move in.
Even a fresh coat of paint in one room can set you back $200-$500, depending on the size of your house and the paint you choose.
If the house needs major repairs, such as a new roof, kitchen counters or a bathroom overhaul, you may be spending thousands of dollars to get your house ready for move-in.
Insurance and Taxes
You know that you have to pay insurance and taxes at closing, but these aren’t one-off fees. You’ll have to pay insurance and taxes every year.
Lenders require homeowners’ insurance, but even if they didn’t, you’d still want it. It protects your home from damages and losses caused by:
- Natural disasters
The cost of homeowners’ insurance will depend on your location and several other factors. You may spend just a few hundred dollars per year, or $4,000 or more. According to Bankrate, people in Islamorada Village of Islands, Florida pay $6,295 per year in homeowners’ insurance.
Taxes will also depend on your location. Some areas have sky-high property taxes. In other areas, the taxes are just a few hundred dollars a year. People in New Jersey spend almost $9,000 on average in property taxes. The median cost of property taxes in Alabama? Just $522.
Buying a house is a huge expense – probably the biggest one you’ll ever have. Before you dive in, make sure that you know how much it will cost. These three things are the biggest expenses that most people overlook.