When buying a home, most first time home buyers focus only on the price of the house and not on the other costs that come along with buying a home. Some fees have to be paid up front, while other fees can be combined into your home loan. It’s important to learn the difference and know what you are expected to pay so that you won’t have any surprises pop up. The following list gives a brief rundown on the five most common fees to look out for and expect when purchasing a home.
1. Private Mortgage Insurance
You will most likely be required to purchase Private Mortgage Insurance if you are putting down less than 20% on a house. It is usually provided by a private mortgage insurance company. The purpose of Private Mortgage Insurance is to protect lenders against a loss if you happen to default on your loan. Two different types of PMI payments exist. First, there is an upfront PMI premium that has the option to be paid either at closing or get rolled into your loan. The other type of PMI payment is monthly. Be careful of monthly PMI’s and rolling the payment into your loan because both of these options can change the amount of your mortgage payment.
2. Homeowner’s Insurance
Homeowner’s insurance is so crucial. Typically, homeowner’s insurance needs to be purchased prior to closing on the home. You will owe the first year’s payment to the insurance company to prove that you have insurance. After the first premium payment is finished, you are able to escrow every annual payment into your mortgage payment.
3. Title Insurance
You are usually required to buy title insurance. Typically it is rolled into your closing costs or can be financed into your loan. You are not required to buy title insurance for yourself, but it is a smart option if you are concerned about a title issue interfering with you being able to keep your home.
4. Appraisal Fees
Getting an appraisal fee is incredibly important to ensure that you can establish a fair market value for your home for tax reasons. An appraisal is simply written proof of the price paid for a property, and it is heavily affected by the sales of homes in the area. Your lender will need an appraisal to ensure that your home is valued at the amount you need to borrow. This fee needs to be paid up front, the appraisal cannot happen before this fee is paid.
5. Escrow Fees
Part of your monthly mortgage payment will go into an escrow account to go towards insurance and property taxes. You are basically prepaying a portion of your homeowner’s insurance and property tax costs for your house ahead of time. Every month, a portion of the mortgage payment is placed in the escrow account to ensure that your property taxes for the year and homeowner’s insurance premium will be able to be paid when they are due next.
We hope this helped clear some of your confusion! While these are definitely not all the fees that come along with purchasing a house, these are the fees that we find to be the most substantial. If you have more questions feel free to call 512-653-9999 or shoot us an email at firstname.lastname@example.org.