An offer you made on a home was finally accepted. It’s a done deal, right?
Not quite.
Now you have to go through the thousands of dollars of fees and expenses you had no idea about when you shopped for a mortgage. And for what it’s worth, the panic that comes from having to shell out more money than anticipated is more common than you think. Sure, you know about “closing costs,” but did anyone really explain what these costs are?
In this guide, we break them down piece by piece to give you a picture of how much cash you really need to prepare when getting a mortgage.
Appraisal Fee
Many home buyers already know that lenders want an appraisal of the house you want to buy in order to determine your debt-to-income (DTI) ratio, or the amount of debt you can realistically take on relative to your income. The problem is the cost of the appraisal itself, which can go anywhere between $300 to $1000. This one-time fee ultimately depends on your location and size of the home you wish to buy.
Home Inspection Fee
Depending on your lender, you may be required to cough up a few hundred dollars for a home inspection, which will confirm if your home is safe to live in. Again, the exact amount of this will depend on your home’s size and neighborhood, it’s a good idea to set aside $500 for this expense.
Credit Report Fee
Lenders may pull your credit report to use in their own risk-analysis models when determining your ability to take on a new loan. This is where your credit score comes in as a key factor for your total loan amount and interest rate. The problem here is that credit checks actually affect your credit score, unless these mortgage-related inquiries happen within a 45-day period, which then count as one inquiry. Still, every report may set you back by $50, although some lenders will cover this cost themselves.
Private Mortgage Insurance
Private mortgage insurance is only a problem if you are borrowing more than 80 percent of the home’s value. Lenders use PMI to insure themselves against these riskier home loans. Typically, most buyers who can’t pay a down payment of 20 percent or above have a higher risk of defaulting on their loan, so PMI gives lenders a buffer, protecting themselves from extreme losses.
PMI can cost several thousand dollars, but ultimately it will depend on the cost of the property and your total loan amount. You can either pay it as a one-time or roll it in with your mortgage payments.
HOA Fees
Homeowners’ association fees are only an issue if the neighborhood the property is in requires homeowners to join the organization. This is especially common with condos and town houses, where HOAs charge fees to maintain common areas, facilities, and building infrastructure. Check with your lender about any HOA fees, which typically have to be paid on a monthly basis. According to one report from 2015, the national average for monthly HOA payments is $331.
For more advice on the hidden costs of buying a home, mortgage advisor Chris Lamm can you walk you through the entire home loan application process. Get in touch today by calling our office at 530-282-1166 to schedule a consultation.