Buying your first home can be one of the most exciting, yet stressful, experiences of your life.
After getting pre-approved you’re finally ready to start your search. You know how much house you can afford and you’ve saved enough to make a large down payment. However, along with your pre-approval letter your lender also sends you a loan quote summary and it has a lot more than just a down payment amount on it.
What are are all those additional numbers and fees?
When most of us think of buying a home, we think of the down payment we will need and the highest monthly mortgage payment we can afford. But if you are a first-time homebuyer, you may not realize that other up-front costs need to be paid when you buy a home. These are called closing costs.
Here’s a quick rundown of most of the closing costs you will potentially see when you go to sign on your new home.
Loan Origination Fees
These are all the costs to get your loan set up. These include fees for document preparation and processing and underwriting your loan. What is underwriting? It’s part of the approval process your lender will use to make sure you are financially able to pay back your loan. This includes analyzing your credit history as well as other factors.
The appraisal is when a professional assessment is done on the home you are purchasing to ensure the home is valued at least equal to or higher than your mortgage. The sale of the home is generally contingent on the appraisal meeting the purchase price. Typically, any difference in the amount the home appraises for and the purchase price will not be covered by the loan.
A survey will also be completed to ensure that the size recorded on the title is the actual size of the property. Appraisal and survey fees are usually several hundred dollars.
Policies for the buyer and lender are calculated based on the purchase price of the property. This protects the lender from any problems with the title after the transfer of ownership.
Home Owner’s Insurance
The first year is usually paid at time of closing.
Private Mortgage Insurance (PMI)
If your downpayment is less than 20% on a conventional loan, or if you are using an FHA or USDA loan no matter the downpayment amount, you will most likely need private mortgage insurance. This protects the lender incase you are unable to repay your loan. Mortgage insurance can be paid either up-front during settlement, rolled into your monthly payment, or a combination of both.
Mortgage Discount Points
These are points paid at closing to your lender to lower your interest rate. You may not have any mortgage discount points, and if so, this should be $0 on your loan estimate.
At time of closing you are usually required to pay six months of advance tax. These will vary by location and it is possible they will be reassessed after the loan closes.
This fee goes to the escrow agent who helps you close. It can vary based on the purchase price of the home. Escrows are items that are due to a third party that your lender will pay the third party for you. While you pay into your escrow account each month as part of your mortgage, you have to put in funds upfront at closing to ensure your escrow account starts with positive funds.
Depending on your loan amount, type of loan, location and other factors there can be other fees associated with your loan. These can include inspection fees, transfer tax and recording fees, any reimbursements to the sellers, and potentially other costs.
While there are a lot of fees due at closing it doesn’t mean you’ll be responsible for them all. Talk to us to learn which fees we may be able to negotiate that the seller pays instead. Buying a home is a big step, especially for first-time home buyers who are new to the process. Sisters Real Estate Services will be with you every step of the way so that you have the smoothest experience possible.
Have questions? Ready to start your search? Call Sisters Real Estate Services today at 813.695.3166