Buying a home is one of the biggest commitments of your life. Between qualifying and being approved for a home, it’s easy to forget about the closing costs. Before purchasing your home, do your research on all of the following costs, both big and small, incorporated into your purchase.
- Down Payment: The price of your down payment varies depending on the overall price of your home and the type of loan that you choose. Typically the DP is 3.5%, 5%, and up to 20%.
- Credit Score/Credit Report: Verify your credit score before the thoughts of buying a home even crosses your mind! You can access your credit report for free through various sites but in some cases you may need to pay between $10 and $20.
- Home Inspection: This is an unbelievably important part of purchasing your home. Old or New, there may be hidden issues (costs) in your potential home such as; mold, termites or electrical issues. They take a few hours and generally cost anywhere from $300-$500 and up depending on the type of inspection.
- Loan Origination and Points: If you agree to pay in “points” to obtain a lower interest rate. You can think of them as pre-paid interest. 1.8% is typically reduced from your interest rate per point purchased. The origination fee is what you pay the lender to write and process your loan. The pricing can be up to several thousand dollars.
- Appraisal: An appraisal is set in place to protect a lender (and you) from investing in an over-priced property. Say your home appraises for $225,000 but the seller is asking $250,000, you would only get financing for appraised price of $225,000. This will also help you to know the real market value of your potential home.
- Private Mortgage Insurance: According to the Federal Reserve Bank of San Francisco, “PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.” If you default on your loan, PMI protects your lender.
- Notary Fees: Should generally be less that $10