Buying a home is a big decision, and there is a lot to consider beyond simply finding the perfect property. One important factor is closing costs. These are fees and expenses you will encounter when you close on a home, and they can add up quickly. Many first-time homebuyers are not fully aware of the costs involved and may be surprised to find out that there are several expenses that their mother never told them about. Here are some of those costs:
1. Loan origination fees
When you take out a mortgage, you will likely be charged a loan origination fee. This fee covers the cost of processing your loan application and can range from 0.5% to 1% of the total loan amount. For example, if you take out a $200,000 mortgage, your loan origination fee could be anywhere from $1,000 to $2,000.
2. Home appraisal fees
Your lender may require a home appraisal to determine the value of the property you are purchasing. Appraisal fees can range from $300 to $500 depending on the size and location of the property.
3. Title insurance
Title insurance protects both the lender and the homeowner from any issues with the title of the property. This can include previous liens, judgments, or claims on the property. The cost of title insurance can vary depending on the property value but is typically around 0.5% of the purchase price of the home.
4. Home inspection fees
It’s always a good idea to have a home inspection done before purchasing a property. A home inspection can uncover any potential issues with the property and can help you negotiate repairs or a lower purchase price. Home inspection fees can vary but can range from $300 to $500 depending on the size and location of the home.
5. Escrow fees
Escrow is a neutral third-party that helps facilitate the closing of the home sale. Escrow fees cover the cost of their services and can range from $400 to $700 depending on the purchase price of the home.
6. Prepaid expenses
When you purchase a home, there are certain prepaid expenses that you will be responsible for paying upfront. These can include:
- Property taxes: Depending on when the property taxes are due, you may need to pay a portion upfront. This can range from a few hundred dollars to a few thousand dollars depending on the property value and location.
- Homeowners insurance: You will be required to have homeowners insurance before closing on the home. The cost of this insurance can vary depending on the property value and location.
- HOA fees: If the property is part of a homeowners association (HOA), you may need to pay HOA fees upfront. These fees can vary depending on the community and the services they provide.
7. Moving expenses
Moving can be expensive, and it’s important to budget for these costs when purchasing a home. Some of these expenses can include:
- Moving truck rental: Depending on how far you are moving and how much stuff you have, a moving truck rental can cost anywhere from a few hundred dollars to a few thousand dollars.
- Professional movers: If you don’t want to move everything yourself, you may need to hire professional movers. This can cost several hundred dollars or more depending on how much stuff you have and how far you are moving.
- Storage: If you need to store your belongings before or after the move, you will need to budget for storage costs. This can range from a few hundred dollars to a few thousand dollars depending on the length of time and the amount of space you need.
Closing costs can add up quickly, and it’s important to budget for these expenses before purchasing a home. Your mother may not have told you about these costs, but by doing your research and understanding what to expect, you can avoid any surprises and make a confident and informed purchase.