Property Buying Costs

In addition to the mortgage payments and the down payment, there are a number of other costs that traditionally accompany a house purchase. However, many people overlook, or are unaware of the different home buying costs they will need to pay for, and as a result, they may find themselves unpleasantly surprised. By taking the time to learn about these home buying costs before you begin the process, you can ensure that you are well prepared.

Application Fee

Estimated cost: $75 to $300.

This charge covers the initial costs of processing your loan request and checking your credit report.

Appraisal Costs

Estimated cost: $225-$700

Generally paid in order for the mortgage company to obtain a fair market value of a home. These fees can also be important for tax purposes.

Credit Report Costs

Estimated cost: $15-$30

Before your lender can make a decision on your loan they will want to look at and verify your credit report. The fees for doing this are usually charged to you in connection with your loan.

Document Preparation Costs

These are the home buying costs that are paid to your lender, attorney or broker for the preparation of documents.

Escrow Fees

Depending on your lender and the terms of your contract with the seller, you may be required to pay money into escrow either before the closing or while you are paying down your mortgage.

Home Inspection Costs

Estimated cost: $225 to $450

Your lender may require a home inspection to make sure that the property is in good working order. This can also serve to protect you should there be anything wrong with the house that would persuade you to back out of the deal.

Homeowner's Insurance Costs

Estimated cost: $300 and up. You can estimate the cost to be about $3.50 per $1,000 of the purchase price of the home.

Most lenders require insurance on the property before you can actually take possession. These fees vary according to the insurance company and the size of your home.

Legal Fees

These are the home buying fees you may pay in connection with any consultation you receive from an attorney regarding your transaction.

Loan Origination Fee

Estimated cost: 1% to 1.5% of the loan amount.

Also known as the underwriting fee, administrative fee, or processing fee, this fee is charged for the lender's work in evaluating and preparing your mortgage loan. This fee can cover the lender's attorney's fees, document preparation costs, notary fees, and so on.

Notary Public Charge

In order to verify your identity you will need a notary.

Pest Inspection Fee

If you are buying an older home you will need a pest inspection; this won't necessarily be required if you are purchasing a newer home.

Points Fees

Estimated cost: 0% to 3% of the loan amount

In order to lower the interest rate on your mortgage you may wish to buy points. Each point represents 1% of the mortgage value. For example, 1 point on a $100,000 loan would be $1,000. The more points you pay, the lower your interest rate should be. If you pay the points at settlement, they are deductible on your income taxes in the year they are paid (different deduction rules apply when you purchase a second home or refinance). In some cases you may be able to persuade the seller to pay the points for you.

Private Mortgage Insurance (PMI)

Estimated cost: 0.5% to 1.5% of the loan amount to pre-pay for the first year

If your down payment is less than 20% of the value of your home, then the lender will normally require you to pay Private Mortgage Insurance (PMI) to covers their risk in the event that you do not make the loan payments. By federal law, as long as your mortgage payments are current your PMI payments will automatically stop when you acquire 22% equity in your home, based on the original appraised value of the house.

Property Taxes

It may be the case that you owe some property taxes as soon as you purchase your home. This might happen if the seller of the property has paid them upfront covering the period of time in which you will actually own the property. For example, if your were closing on your home purchase in January, you would be required to reimburse the Seller for Febuary and March taxes that were paid by the seller as part of a quarterly set of taxes that were paid at the beginning of December.

State Recording Fees

Estimated cost: $50 to $150

These fees depend on state requirements. Some, such as the recording fee and transfer fee, are one-time fees.

Survey Costs

Estimated cost: $150 to $400

A survey may be required in order to determine the exact boundaries of the property and the location of buildings and improvements on the land. You won't need to pay this fee if an existing survey can be used.

Tax Service Fees

This service is to ensure that your real estate taxes are paid.

Title Insurance

Estimated cost: $175-$875

This insurance covers you if it turns out that the home seller did not actually own the property you bought. The estimated cost of title services and title insurance varies by state, with the cost of the policy (a one-time premium) usually based on the loan amount. It is often paid by the buyer, although you may negotiate with the seller to pay all or part of the premium.