Cost of buying a home – it’s not just the listing price

February 8th, 2018 Tammi Sauer
mortgage, midwestone bank, buy home, homebuying, tammy sauer

Key takeaways

  • In addition to the actual cost of the home, there are other costs of purchasing a home.
  • When you establish your overall mortgage budget, take these costs into account.
  • Our list will provide you with a good overview of what you need to consider.

Buying a home is about more than the down payment and the list price. There are many costs of purchasing a home that you may not be taking into account in your overall mortgage budget. We’ve pulled together an overview to help you ensure you don’t overlook any of these costs.

Mortgage costs

Mortgage costs are the various fees charged in connection with a mortgage loan. As a rule of thumb, closing costs run about 2 to 4 percent of the purchase price. Closing costs typically include, but are not limited to:

  • Appraisal – An appraisal will determine the fair market value of the house you are buying to ensure the purchase price and the amount of the mortgage loan requested are appropriate.
  • Credit report – you’ll be expected to pay for the cost associated with pulling your credit report so the lender can identify other debt that you may have, review your payment history, and sometimes it’s also used to aid in determining the interest rate for your loan.
  • Title fees and searches – In order to determine the legal ownership of a property and the liens or judgments that may be attached to the property, a title search is performed by a third party. An attorney identifies any items that must be resolved in order to convey a clear and clean title to you. In some states, the lender will then have the title guaranteed by the state the home is located in to insure against errors and omissions. As the buyer, you may be responsible for both of these costs. Iowa is one example of a state that guarantees titles.
  • Attorney fees – In most states attorneys are required to be part of the home buying process.
  • Recording fees – These are the costs for recording the deed to the property with the county, showing you as the new owner and the mortgage, showing that there is a lien against the property for the mortgage loan. In addition, some states have a tax that is a percentage of the mortgage amount or purchase price, which can be costly. For example, in Wisconsin this is called the deed tax, in Minnesota it’s called the Mortgage Registration tax and in Florida it is referred to as the Documentary and Intangible taxes.

Inspections

A home inspection is a complete and detailed inspection that examines and evaluates the mechanical and structural condition of a property. For MidWestOne customers, inspections are not required, but recommended.

As a buyer, you’ll want to make sure you complete an inspection before you move into closing. According to the US Department of Housing and Urban Development, you should estimate roughly $300-$500 for a thorough home inspection.

Adjustment costs

Depending on when your purchase actually closes, the seller may owe you for taxes that you will be paying in the future on this home. In some states, the property taxes are paid in arrears. When the seller sells their home to you, they need to pay their proportionate share of the upcoming tax bill, which reflects the taxes that were incurred while they were living in the property.

Private mortgage insurance (PMI)

If your down payment is less than 20 percent, you will likely have to pay PMI. This added cost is usually rolled into your monthly mortgage payment and may remain even after 20 percent equity is reached unless you choose to refinance.

Insurance

Don’t forget about your homeowner’s insurance. Also, depending on the location of your new home, you may also be required to purchase flood insurance.

Maintenance costs

Many people don’t think about short-term maintenance costs when buying a home, but they should. Whether buying an older home or a newly constructed home, major home systems like furnaces or hot water heaters can break down. By adding this into your monthly budget upfront, you will be able to address these costs when they occur.

New furnishings and other related expenses

This is a cost that many people overlook – especially if it’s your first time buying a home. Will you need to purchase new furniture, appliances, window coverings or other items for the home? Make sure you take these into account in your budgeting process.

Tammi Sauer

About the author

Tammy Sauer is a Mortgage Banker with MidWestOne Bank. NMLS ID 641589

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