First-time home buyers know they need to save money to place a down payment on a home; however, many times they’re unaware of the additional upfront costs leading to closing, which can range from a few hundred to a few thousand dollars. Here’s a list of five common expenses potential buyers should be prepared to pay as they head into the home buying process.
- Earnest money – $500-$2,000 – Buyers show they’re serious about purchasing a property by putting down earnest money, usually between $500-$2,000. The money is usually held by the seller’s real estate agency and is applied to the down payment or closing costs. If an offer fails to move forward, the buyer can sometimes get their money back.
- Appraisal fee – $350-$600 – After the loan application is complete, the lender will ask for an appraisal on the property, which helps determine if the home’s value is within range of the loan amount. Payment for the appraisal is made upfront and is nonrefundable, even if the sales agreement stops moving forward.
- Home inspection – $350-$500 – Hiring a certified and licensed home inspection is an important expense for any buyer. The inspection looks at the structural integrity of the home as well as other elements, such as building codes, hidden dangers and needed repairs.
- Pest or mold inspection – $75-$350 – Indiana has humidity and termites, and while these two may not always go together, depending on a home’s location and history, a pest or mold inspection may be a good investment.
- Survey – $150-$2,000 – If a copy of the property’s survey can’t be found by the home owner or county, and the buyer desires one, it will have to be ordered, and that cost falls onto the buyer.
In addition to the upfront costs listed above, below are a few more that could arise, but can also be rolled into the final closing costs. Many of these charges originate from the lender, which can determine if the costs must be paid upfront or be bundled into the closing costs.
- Private mortgage insurance – Currently 1.75 percent of the loan amount if paid upfront – Potential buyers putting down less than 20 percent are required to purchase private mortgage insurance, which protects the lender in the event the buyer defaults. Some lenders require the premium be paid upfront, while others roll it into the closing.
- Lenders Title insurance – $75-$150 – Buyers are usually required to purchase lenders title insurance, in the event a problem arises with the home’s title, during the purchase process. In most instances, the owners’ title policy is paid by the seller.
- Origination fee – Usually one percent of the mortgage amount – When lenders begin a loan application, there’s an origination fee, which can be paid at upfront or be rolled into the closing costs.
- Credit report fee – $25 – Lenders require a verified credit report to begin the application process.
While having a sizeable down payment is important, its also critical to have at least a thousand or more dollars available to spend on upfront expenses. Not all fees can be rolled into closing and some must be paid at the time services are rendered. If there’s questions about a fee or charge, its best to speak to a licensed real estate agent or the lender.
The dollar amounts listed above are averages for Central Indiana, costs may vary between lenders, inspectors and assessors.