Congratulations on deciding to buy a home! Now is the time to start planning for all of upcoming expenses when purchasing a home. Most first-time buyers realize that a down payment will be due, but there are some additional expenses to plan for as well.
Meeting yourself where you are and reviewing all the details of your current financial situation is the very first thing you should do after deciding to buy a house. Be sure to save more than you think you’ll need to leave some wiggle room for unexpected issues or additional expenses.
Our experienced ADKPP agents ensure that all of our clients are well informed about the financial side of things as they move into the buying process. Read on for tips and valuable information to help you plan for how to cover expenses when purchasing a home.
10 Expenses When Purchasing A Home
1. Closing Cost
If you are getting a mortgage, plan on having closing cost expenses when purchasing a home. This includes all combined expenses that are required to purchase the property. These costs are normally around 3-6% of the home’s value, and are generally required to be paid out of pocket instead of adding it into your loan. This means that for a $200,000 home, you will have to plan on an additional $6,000 -$12,000 in closing cost outside of your down payment.
2. Appraisal Fee
Additionally with a mortgage, the lender will require an appraisal to be done. This protects them (as well as you) from purchasing an overpriced home. It also allows the lender to assess the amount of risk associated with loaning you the money for expenses when purchasing a home. Depending on the company that conducts the appraisal, costs could add up to another $500-$2,000 expense. This could be included in the closing cost.
3. Credit Report Fee
In order to get your mortgage fully approved, most lenders pull your hard credit to ensure your credit score and history are good. Depending on what lender you use, they may charge a small fee for pulling the report. This is usually only a $20-$30 fee, but you should still plan for the extra fee expenses when purchasing a home. This could be included in the closing cost.
4. Home Inspection Fee
Home inspections are important for any home buyer. At ADKPP, we always suggest having one done because it will give you a good assessment of the health of the home. The home inspection is normally done after your offer has been accepted, and requires a fee that is paid ahead of closing. While it is another expense, it might just save you in the long run from having to lay out more cash to repair the property.
5. Title Search
Title companies analyze property records to make sure there are no liens on the property that you are purchasing. This normally comes with a small fee in order to receive the record, usually ranging from $50-$200 depending on which company you, your lender or your attorney chooses. This search will also save you headaches in the long run. Finding out that contractors or companies have a lien on the property can result in major expense and inconvenience down the line. This could be included in the closing cost.
6. Origination Fee
If you are taking out a mortgage, plan on paying an origination fee. This cost is what the lender charges you to process the loan and cover expenses like mortgage documentation and underwriting. It generally costs between .5% to 1% of the loan. A $200,000 mortgage would be $1,000-$2,000 fee. This could be included in the closing cost.
7. Earnest Money
One of the bigger expenses when purchasing a home, this is your commitment to purchase the home. These funds are placed into an escrow account until all parties complete the necessary steps to finalize the sale. When conditions are met, the money is released and applied to the down payment or closing costs. These deposits protect all parties during the sale and are normally a 1-2% fee. On a $200,000 house this would be a $2,000-$4,000 fee paid out of pocket.
8. Private Mortgage Insurance (PMI)
While you may not be required to have a 20% down payment of the purchase price, you may have to pay private mortgage insurance (PMI) if you don’t. This is an additional fee that can be up to 2% of the loan annually. This fee protects the lender if you default on the loan. Generally, first time home buyers are the ones who end up with this insurance that stays on your mortgage payment until it the loan balance is below 80% of the home’s value.
9. Homeowners Insurance
When taking a mortgage, you will be required by the lender to provide proof of homeowners insurance. This is a requirement because it protects your investment and the bank from any damage that could happen to your home. This insurance can vary greatly depending on age, location, and type of home as well as what you want covered. It is smart to shop around to see who is able to give you the best coverage at an affordable price.
10. Property Taxes
Determined by your state, county, village, and school district, paying property taxes is unavoidable. These property taxes go toward funding schools, parks and services. These expenses when purchasing a home can vary greatly depending on location.
Generally, in the Adirondacks if you are in the town/village, you will pay more than if you are just outside of it. These taxes can go up over time so plan ahead for increases. Your real estate agent should be able to provide current tax rates and let you know what the mill rate is in an area so you can estimate if they will go up after purchasing.
Bonus Fee- HOA Fees
If you are looking to purchase a condo, townhome or a home in an area that has an HOA, plan on paying the fees to receive the services. Depending on the association, this could be a monthly fee or a yearly fee. The HOA fee could cover everything from road maintenance to a private beach or golf memberships. Fees could range from $200-$700 a month to a $500 yearly fee for basic maintenance. Before you close you should have knowledge of what these fees will be so you can plan accordingly.
Looking into your current financials and planning ahead for additional expenses other than your down payment will save you a lot of trouble. Do your best to educate yourself on all the expenses when purchasing a home that you’ll likely incur. Avoid getting too deep into the home buying process only to find out that you can’t close on the property because you are short on funds.
Saving more than what you think you need and talking with your lender about what the estimated amount of closing costs will be is essential. Most lenders will give an estimated amount well before the closing with a final amount disclosed a week to ten days before the closing.
Our team at ADKPP has walked thousands of buyers and sellers successfully through the closing process. Review our tips above to be financially ready for your next home purchase. Contact us today for assistance in buying or selling your Lake Placid region home. We are ready to help make your real estate dreams come true!