When buying a home, most people focus on the price of the house and what interest rate they can get on their mortgage loan. While knowing these costs is very important, they aren’t the only expenses you’ll encounter on your journey toward homeownership.
Some fees must be paid upfront and require careful planning and budgeting before your home purchase. Other fees can be rolled into your home loan and paid as part of your mortgage payment. Understanding both sets of fees is critical to ensuring a successful, affordable home purchase.
Use this guide to understand better the fees you’ll incur as you go about purchasing a home.
- When buying a home, the cost of the house and the interest rate on the mortgage aren't the only expenses to consider.
- Other costs and fees can include the down payment, underwriting and application fees, inspections, escrow fees, mortgage insurance, and more.
- Not all of these fees will always apply, and they may vary from state to state.
- Asking for an updated loan estimate or preliminary closing disclosure can help you better understand your expected costs.
Detailed Costs of Buying a Home
On closing day, you’ll owe a variety of fees to the seller, your mortgage lender, the surveyor, the appraiser, and other parties. These will all be outlined in your closing disclosure, which you should receive at least three days before your closing date. For an idea of these costs earlier in the process, look toward your loan estimate, which you should receive after initially applying for your mortgage loan.
Below are some of the major fees you can expect to pay as a homebuyer.
Your down payment will probably be the biggest expense you’ll have when closing your loan. Though some loans (like USDA and VA loans, for example), require no money down, the majority of homebuyers will need a down payment of at least 3% (on conventional loans) or 3.5% (on FHA loans). On a $300,000 home purchase, this would equate to a down payment of $9,000 to $10,500.
Lender-based Origination, Underwriting, and Application Fees
An origination fee is paid to the bank or lender for their services in creating the loan. You also may owe an underwriting fee, an application fee, and a fee for your credit report.
In some cases, you may opt to pay discount points—which cost 1% of the loan—to lower your interest rate and monthly payment. These points are paid to the lender at closing as well.
You will also pay for several fees related to the title of your home. You’ll usually see charges for a title search, title settlement, title insurance binder, and title insurance. You’re allowed to shop around for your title services if you want to negotiate lower rates.
Title insurance is designed to protect the lender in case an issue arises with the title to the home you're buying. You're usually required to buy lender's title insurance. This cost is rolled into your closing costs or financed into the loan. Title insurance for yourself is optional, but it's something to consider if you're worried about a title issue affecting your ability to keep the home after the fact.
Survey and Appraisal Fees
If an existing survey of the land you’re buying cannot be obtained, a new survey will have to be conducted to determine the exact boundaries of the property. These usually cost around $500, but like title services, you’re also free to shop around for them.
An appraisal is also usually needed so that your lender can justify the money it’s lending you for your property. This appraisal is one fee you'll pay to the lender upfront before the appraisal can take place. It typically costs between $300 and $400.
State Recording Fees
Depending on where you live, there may be a fee required for recording and holding the information regarding the sale with your county register of deeds. There may also be a charge for transferring the property from one owner to another (called a transfer tax).
Prepaid Property Taxes, Homeowner’s Insurance, and Interest
You’ll also owe money toward property taxes and homeowner’s insurance. You can expect to pay for at least 12 months of home insurance upfront and six months of taxes. You will also need to pay insurance on your loan for each remaining day of the month.
Private Mortgage Insurance
You may be required to purchase mortgage insurance, depending on what type of mortgage loan you’ve taken out. Mortgage insurance is required on all FHA and USDA loans and may be required if you’re putting less than 20% down on a conventional mortgage loan.
You may be required to pay an upfront mortgage insurance premium as well as pay a monthly premium once you own the home. In some cases, the upfront premium can be rolled into the loan. Just remember that rolling this payment into the loan—and the monthly PMI premiums—can affect the size of your mortgage payment.
During the closing process, an escrow account will usually hold the money while the buyer and seller finalize the agreement. In addition, you’ll probably have a portion of your monthly mortgage payment go into escrow to pay for property taxes and insurance. Essentially, you prepay some of the homeowner's insurance and property tax costs for the home ahead. Each month, part of your mortgage payment is diverted to this escrow account so that your annual property taxes and homeowner's insurance premium can be paid on their next due date.
Pest or Mold Inspection
While not generally required for a brand new home, the purchase of an older home may require an inspection for pests such as termites as well as mold. This requirement can vary by location, and the cost usually runs between $50 and $280.
If you’re using a real estate agent, you may or may not have a commission charge to cover. The sellers often pay these fees, but in some cases, the fee comes out of your pocket. Make sure you understand your agent’s commission structure before signing any contract. Most real estate transactions require a commission of 6%—or around 3% for each agent.
Other Fees You May Encounter
- Flood-related fees - If you live in a flood-prone area, you may need to pay flood determination, certification, or monitoring fees.
- HOA costs - If your property is located within an HOA, you might have dues, processing fees, transfer fees, and more.
- Warranty - If you’re purchasing a home warranty to protect your home and its systems, this will be charged at closing.
- Home inspection - This won’t show up on your closing disclosure, but it’s a cost you should plan for if you want to make sure your home’s a good investment. These cost anywhere from $278 to $391.
A Word to the Wise
Keep in mind that not all of these fees will always apply and may vary from state to state. Some may be waived or paid for by the lender or home seller. Regardless, you must understand what the fees are and who is responsible for paying them.
Before finalizing your home purchase, talk to your real estate agent, lender, or closing attorney. Ask for an updated loan estimate or preliminary closing disclosure. These forms can help you better understand and plan for your home purchase's expected costs.