If you are a first-time homebuyer, you might think that the price tag on the home is the only cost involved for a mortgage. However, there are other expenses that might catch you off guard. If you’re shopping for your first house, prepare for these additional, and often unexpected, homebuying costs.
After your offer is accepted, a home inspection will be your first major expense. Home inspections give the buyers an idea of a home’s problems before they close and allow them to negotiate with the seller to cover the cost of some needed repairs. Essentially, they give you an idea of whether you are financially equipped to own this property or if you should for a different house. While some lenders might require a home inspection, you should at a minimum order a general inspection of the house and a termite inspection. Depending on the age and condition of the house, you may also want to schedule a sewer inspection. All of these can add up to over a thousand dollars, but that’s a small price to pay to make sure you’re not getting a lemon.
After your offer is accepted, your lender will crunch some numbers. At this point, they should give you a detailed list of what your closing costs will be. According to Zillow, closing costs will run you an extra 2% to 5% of the home purchase price. Closing costs usually include lender fees, home appraisal, title or attorney fees, escrow fees, and interest that’s prorated from the date of your closing to the first of next month. Buyers can negotiate with the seller, and sometimes the seller will even agree to assume the buyer’s closing fees.
Insurance and Taxes
If you’re getting a conventional mortgage and you cannot put down 20% on your down payment, you’ll need to pay for a private mortgage insurance or PMI policy. Private mortgage insurance premium rates vary based on the loan-to-value ratio on the home, your credit score, and whether your mortgage is fixed-rate or variable-rate. The loan-to-value ratio is the amount of money you will borrow for the home compared to the value of the home. The more money you use as a down payment, the less you need to borrow, making this ratio more favorable.
When going through the mortgage process, your mortgage servicer will put together an estimate for the amount that will pay the bills for your real estate tax and homeowners insurance. This escrow estimate is based on information provided during closing, through the taxing authority and insurance company, or previous tax and insurance bills. The estimated payment is then divided by 12 to determine the amount of the monthly payment, and that amount is added to your monthly mortgage statement. Payments are then made on your behalf by your mortgage servicer as they are due.
Knowing the hidden costs behind your mortgage will financially prepare you once you are ready to make your offer. Learn more about the homebuying process and costs by contacting any of our experienced Loan Officers!