What Charges Are There When Buying a New Home?
Buying a home can be an expensive process that may result in having to pay far more for a property than its stated price. Most home buyers take out mortgages to afford their homes and the mortgage settlement or closing process often involves paying a variety of charges, collectively called "closing costs," that can significantly increase the cost of buying a home.
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Home Mortgage Points
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Home mortgage points are a form of prepaid interest that some lenders may require you to pay when you buy a home. The U.S. Federal Reserve Board says that home mortgage points can cost up to 3 percent of the total cost of a loan. Points are tax deductible in the year they are paid.
Application and Origination Fees
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Some lenders charge a fee simply to process a loan application. The Federal Reserve Board reports that application fees typically cost $65 to $640. Origination fees include the cost of preparing loan documents and lender legal fees and may cost $3,000 or more. Making a larger down payment may reduce the cost of loan origination fees.
Home Inspection and Appraisal Fees
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Home mortgages are secured loans, meaning the value of the home acts as collateral for the loan. If you fail to pay a mortgage, the lender can potentially foreclose on the home and sell it to someone else to recover its money. Lenders may require a home inspection to check for problems such as pests, damage to water systems and the general condition of the property. In addition, lenders may pay for home appraisals to determine the cost of a property. The cost of home inspections and appraisals may be passed on to the buyer as fees that can amount to a few hundred dollars.
Mortgage, Homeowner's and Flood Insurance
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If you do not make a down payment of at least 20 percent of the price of a home, your lender may require that you pay for private mortgage insurance or PMI. PMI is typically added to monthly mortgage payments and can amount to around $100 per month. In addition, mortgage lenders require that borrowers purchase homeowner's insurance to pay for damage that happens to befall a home and flood insurance if the home is in a flood-prone area.
Title Search and Insurance
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Lenders pay to perform title searches to ensure that home sellers are the actual owners of homes and that there are no other claims or liens against a property. In addition, lenders typically require a title insurance policy to protect themselves against any errors made in the title search process. Lenders pass on the cost of conducting title search and paying for title insurance onto the buyer.
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