When considering the price of a new home, many first-time homebuyers make the mistake of forgetting to budget for closing costs. Because closing costs often cost the equivalent of roughly two to five percent of a home’s value, such a mistake can place hopeful buyers in an extremely sticky financial situation if they don’t plan properly. To ensure you still have enough money to pay for your down payment when it’s time to seal the deal, remember to budget for some of the main closing costs of purchasing a home.
Attorney’s Fees
Many states require an attorney to oversee the process at the closing of a real estate purchase. As such, the buyer and seller of the property will need to split the cost of the attorney fee. The cost of the attorney fee will largely depend on your location. Generally, an attorney fee will range between $500 and $1,500.
Home Inspection
Another one of the main closing costs of purchasing a home is the home inspection. Most mortgage lenders will require the borrower to order a home inspection. The inspection will help the lender determine if the home is in good enough condition to live in before deciding to lend you a substantial amount of money to purchase it.
In addition, the home inspection is also highly beneficial for the buyer, as it allows them to identify any hidden issues before making such a large purchase. If there are significant issues, the buyer can choose to opt out of the sale, negotiate a lower sale price, or request the seller to make the necessary repairs before closing. Generally, a home inspection will cost between $250 and $600, depending on the size and location of the home.
Appraisal Fee
In addition to a home inspection, most mortgage lenders will also require a property appraisal as a part of the underwriting process. The appraisal will determine the fair market value of the home. In doing so, the lender can determine if the property is worth the amount of money you want to borrow. Such information will help the lender ensure the loan amount is justified and make sure they’ll be able to recoup the value of the home in the case you default on your loan. Generally, an appraisal fee will generally range between $300 and $500, depending on the size and location of the property.
Homeowners’ Fees
Homeowners’ fees include homeowners’ insurance, property taxes, homeowners’ association fees, and escrow account fees. Such costs are usually paid on an annual basis, but they’re also paid and stored in escrow during closing. By storing these fees in a temporary bank account, the involved parties can ensure the money will be there when it’s time for the buyer to pay. This account is beneficial for both the borrower and the lender, as it makes sure all the necessary bills are paid on time so that the government or bank doesn’t seize the home due to late payments.