When Tom and I first meet with buyers, especially first-time home buyers, we sit down and discuss their goals to understand their immediate needs. We also discuss expectations, market trends, and cover the many expenses throughout a purchase. I think it is fair to say most buyers are not familiar with all the fees that go into purchasing a home. Why would they be? That’s our job! Here are eight fees one should expect when purchasing a home:
1. Down Payment: This is usually the largest expense for a purchaser, and it is important to consult with a lender you trust. Down payments can range from 0% down to “skies the limit.” Obviously, the more you put down, the lower your monthly mortgage payment will be.
2. Loan-Related: Includes application fees, loan origination fees, discount points, mortgage broker fees, etc. This covers the costs of processing your loan which can vary depending on lenders. We encourage buyers to get at least three quotes from various lenders so they can compare the rates and fees.
3. Inspections: Most buyers get general home inspections which cost between $400-$550. After the general home inspection, buyers might hire a specialist to inspect specific areas. Some of the more common specialized inspections are Sewer & Septic ($325-$575), Chimney ($300-$400), Wood Infestation Report ($75-$175), Electrical ($150-$300), and HVAC (+/- $90/ unit).
4. Title: It is important to run a title search to verify there are no outstanding claims or liens against the property. Even though it is not required for cash purchases, we recommend obtaining a title insurance policy; lenders require a title insurance policy. Title insurance protects new homeowners in the event another party has a legitimate interest in your property after you have purchased the home. Title search fee – $325; Title insurance – .5%-1% of purchase price.
5. Appraisal: Lenders sometimes need to verify a home is worth the contract amount agreed upon between a seller and buyer. The average cost of a certified professional appraiser ranges between $400-$600.
6. Prepaids: This includes property taxes, homeowner’s insurance and daily mortgage interest. Typically, you will prepay six months to one year of homeowner’s insurance, two months or more for property taxes plus the prorated amount for the remainder of the year, and daily interest is determined by your interest rate and the remaining days in the month from the day of the closing.
7. HOA: Many homes have Homeowner’s Associations with monthly, quarterly, or yearly dues, which will be prorated at closing. There could also be processing fees, transfer fees, and more associated with the HOA. These can range in prices depending on the amenities they offer.
8. Attorney: The average cost of a closing attorney is $450-$550.
Every home purchase is different and not all fees will apply to every buyer. We think it is important to work with a realtor you trust when buying a home so they can educate you along each step of the process. Plus, so many buyers do not realize, the one fee they DO NOT pay is the real estate commission. It is customary for the seller to pay all of the realtor’s commissions, in other words both the buyer and seller real estate commissions. So, find someone who will represent you and look out for your interests because with Alabama being a Caveaut Emptor state (which is a Latin phrase for Buyer Beware) you have more than enough to do to perform your due diligence without also having to coordinate the amount of money which begins to flow from the time a contract is created.