Typical Costs To Buy a Home
Planning to buy a home? The majority of your costs will be due on the day of closing. In this post we will cover the typical costs you can expect to incur when buying.
- Purchase Contract Deposit: The good faith deposit shows the seller that you are serious about buying the home by putting your money at risk. This amount is typically between 2%-10% of the purchase contract amount. The deposit is credited to you at closing. If you decide to back out of the deal within your rights to do so, your deposit will be returned.
- Home Inspections: The home inspection’s cost will vary depending on the size and age of the home. Older homes may require additional inspection reports to satisfy home insurance companies. Expect to pay between $250 – $700.
- Home Appraisal. The appraisal is required when you are getting a mortgage to purchase the home. Lenders typically require this fee be paid at the time they order it on your behalf. You want to wait until after your inspection period before you give the lender the green light to order the appraisal. The appraisal fee is typically $500+/–
Closing day costs:
- Title Insurance Policy. A title insurance policy is typically required when getting a mortgage, and is well worth the cost when considering what could happen to your investment if someone comes along after the sale and makes a valid claim against the property. The cost of the insurance policy in Florida depends on the purchase price. For purchase prices up to $100,000 figure $5.75 for every $1,000. For purchase prices over $100,000 figure $5.00 for every $1,000.
- Closing Fee. This is the fee the title agency or attorney charges to perform the closing. The closing agent prepares all of the documents for closing, orders the title insurance policy, does searches to clear the title of any encumbrances, orders survey (if necessary), receives the lender’s closing packet and then goes over all of the paperwork with you, has you sign in designated areas, notarizes all of the closing paperwork and then records the required paperwork with the county on your behalf. This fee typically ranges from $350-$800 and can include courier fees, recording fees, lien search fees, etc.
- Property Survey. The survey is used to show the buyer and the title insurance provider what, if any, encumbrances exist on the property. Examples of an encumbrance on a property could be utility easements, encroaching fences or buildings over the property line, or an easement for access through a property to another parcel. The fee is typically $300-$500 depending on the size of the property.
- Documentary Stamps & Intangible Tax. These fee’s are charged when you are getting a new mortgage to purchase the property. These fee’s are based on the mortgage amount as follows: Doc stamps = .0035 x Mortgage Amount; Intangible Tax = .002 x Mortgage Amount.
- RE/MAX Alliance Group Brokerage Fee. This fee, like the majority of other national and local real estate companies, is what I like to call a “quality control” fee. This fee is for the transaction coordinators within the company who review all of the contract paperwork that comes in and confirms all required items are filled in and signed correctly. Our fee may be the lowest in our area. $295
- Homeowner’s Insurance Policy. If you are purchasing a home with a mortgage you will be required to secure a home insurance policy to protect the home and property against damage and liability. Home insurance costs vary significantly. It is best to reach out to an insurance agent as soon as you get a house under contract to determine how much your policy will be. If you are getting a mortgage the lender will require the 1st year policy to be paid at that time. Depending on how much your down payment is you could also be required by lender to add 3-6 months of payments into an escrow account as cushion and will be disbursed on your behalf when the policy renews.
- Property Tax Escrow. If you put down less than 20% (down payment) of the purchase price, lenders typically require the buyer to add 3-12 months worth of property taxes and put that amount into an escrow account as a cushion. These extra funds will be disbursed on your behalf when the lender pays your property tax bill. They use the previous years tax bill as a guide for how much to collect.
- PMI Escrow. As above, if you don’t put down at least 20% the lender may require mortgage insurance for the loan. You will have to pay the premium in full for the first year and then add a 3-6 month cushion depending on the type of financing you use.
- Lender Fee’s. These are fees the lender charges you to put together your loan. Some of these fees are for your credit report, processing the loan & pre-paid interest. The lender is required to provide you with a Good Faith Estimate upon submitting your application that shows these fee’s and others mentioned within this post.
- HOA Application Fee. This fee, if it is required, comes directly from the HOA and covers administrative costs to review your application. It is typically $100 or less.
- HOA Pro Ration/Condo Fee’s. These fee’s are typically paid in advance, so the seller has probably already paid this fee for the year, quarter or month. Whatever the seller has already paid, that you will now be benefiting from, will need to be repaid back to the seller at closing.
- Miscellaneous/Junk Fees. These fee’s can vary depending on each lender, but if you see an application fee or rate lock fee you should ask the lender for clarification.
A good rule of thumb to guesstimate how much your closing costs could be is to figure 3% of the purchase price. While this isn’t an exact science, it will give you somewhat of an idea of the total costs for closing, minus your down payment of course.
While you may have enough in savings to cover the closing costs and down payment, you may not want to exhaust your entire savings in the process. There are certain ways to get help covering these costs, but they will cost you something. You could ask family member for help. You could ask the seller to contribute (though they may require you to pay a higher sale price). Another source of funds are local government grants and down payment assistance programs set aside for individuals with certain income and credit limits.
To get more information about buying a home please don’t hesitate to reach out. We would be delighted to help!