The 5 Most Common Fees Associated With Purchasing a Home

Posted by Andrew Fortune on Tuesday, October 14th, 2014 at 7:42am. 70,865 Views

5 Common Home Buying FeesWhen you are looking at homes online, the sales price of the home listed for sale is not the only cost associated with buying the home. There are many other fees that are associated with buying a house and owning real estate in general. This article will help you breakdown these fees and get a better understanding of the additional costs of buying a house.

I have broken the fees down into 4 separate sections: Purchasing Fees, Mortgage Fees, Title Company Fees, and Home Ownership Fees. I’ve tried to make it easy so you can browse through and read about the extra fees that you may not be familiar with. Let’s start by taking a look at the main fees associated with purchasing a house.


THE 5 MOST COMMON FEES ASSOCIATED WITH PURCHASING A HOUSE

Make sure that you are familiar with these homebuyer fees and have budgeted for them.

  1. Downpayment - This is the most common fee that homebuyers are familiar with. Typically downpayment expenses run around 3.5% to 5% of the sales price, but there are options for 0% downpayment loans. Some homebuyers believe the myth that you need 20% down to purchase a home. The truth is that there are programs that make it possible to buy a home with no downpayment, if you and the property both meet the loan requirements. The best way to find out home much money you will need for your down payment is to talk to a mortgage lender. You can fill out the form on our loan pre-approval page for Colorado Springs to get this process started if you are at that point now.
  2. Earnest Money - Earnest money is not necessarily a fee, but it is something to be aware of because you will need the funds ready when you put in a contract on a house. Earnest money is basically a buyer’s proof that they “earnestly” want to purchase the home. A purchase contract is a great start, but there needs to be some cash involved to protect the sellers interests while they take their house off of the market. In Colorado Springs, earnest money is usually around 1% of the purchase price of a home. A home priced at $250,000 would typically ask $2,500 for earnest money. This $2,500 is credited back to the buyer at closing.
  3. Closing Costs - This is usually the second largest out-of-pocket expense for a home buyer. I will break down these closing cost in more detail below, but I wanted to add it to this section because it should never be overlooked. Most of the fees involved in closing costs are associated with the preparation of your mortgage.
  4. Moving Expenses - This is an expense that seems to be rising every year. The cost of moving is dictated by the amount of items and the distance that you need to move. It’s not uncommon for homebuyers moving across the country to spend well over $10,000 in moving expenses. First-time home buyers typically don't have as many possessions and can usually move with much less expense.
  5. Home Inspection - The home inspection is technically an optional fee, but I would never recommend skipping this very important home buying step. In most states, our real estate contracts offer an inspection period for the homebuyer to have the property inspected by a professional. The real estate inspector will determine whether there are any problems that need to be addressed before moving forward with the home purchase. In Colorado Springs, this fee is usually around $300-$500, depending on the size of the home. There are also specific inspectors who specialize in certain parts of the home. You may also need to hire an additional inspector who specializes in one of the following industries below, based on the home you are buying:

 

Here's a Breakdown of These Fees


MORTGAGE LOAN FEES

Lending FeesThese fees are incurred when using a mortgage to purchase real estate. They are not applicable for cash deals. Mortgage fees are usually the second highest monetary charge to a homebuyer, following the downpayment. These fees can vary from 1% to 5% + of the sales price, depending on your loan type and structure of the mortgage.

  • Loan Origination Fee - This is the largest fee on the mortgage side. It is the fee that you are paying the lender to generate or “originate” your mortgage. It is essentially the cost that you pay the lender you've hired to prepare your mortgage for closing.
  • Discount Points - This is an optional fee that borrowers may be charged as a way to pay down the interest rate on a loan. There are many different ways to structure a loan using discount points, so be sure to ask your mortgage lender to explain all your options if you plan on buying down your interest rate.
  • Application Fee - Some mortgage companies charge a fee to process your loan application, for the time they have invested in order to process it. Loan officers will process hundreds of applications, and many of them may not be ready for a loan yet. This is especially true when lending requirements are more strict.
  • Credit Reporting Fee - Some mortgage companies will charge a fee for credit reporting when they check your credit. In many cases, this fee is from a 3rd party service that is simply passed on to the homebuyer.
  • Property Appraisal - In order to ensure that the mortgage company is lending money on a property that is actually worth the price that you have agreed to in the contract, they will order a property appraisal. A professional appraiser will analyze the property to determine its fair market value. If the appraisal comes back reflecting a market value below the sales price of the sales contract, the buyer and seller will have to negotiate a fix for the problem or the deal will the contract falling apart. This appraisal fee is usually passed on to the buyer, since it is a requirement of the loan.
  • Private Mortgage Insurance - Private mortgage insurance (PMI) is a fee that mortgage companies will charge to protect their interests in cases where they are loaning money for a large portion of the home’s value. In many cases, the PMI will be dropped once a homebuyer’s loan amount becomes less that 80% of the homes fair market value. PMI is usually charged monthly and is an important mortgage fee to research before entering into a loan.
  • Property Survey - Your mortgage lender is going to require a survey of the property that you are purchasing. They do this as a way of verifying the physical specifics of the property and all the real estate specific items on the land before lending money on the property. Many properties will have an existing survey, and in most cases the lender will accept the previous survey if there have not been any changes to the property. If there is not an existing survey, the lender will require one and this expense is usually passed on to the buyer, unless otherwise specified in the sales contract.

 


TITLE COMPANY FEES

Title FeesTitle company fees will vary by each state and wether they are paid by the buyer or seller is negotiated in the sales contract. If you are paying cash for a property, many of these fees are not applicable. In the Colorado Springs area, it is common for the seller to pay most of the title fees. We’ll cover all the title fees below as a reference; many local Title Companies websites offer specific estimates. 

  • Title Insurance Fees - The title company will issue a Policy insuring the property against defects as to Title, as outlined in their commitment. Their fees are for all the administrative and document expenses required to obtain the items necessary before they can issue a Policy. 
  • Title Search - The first thing that a title company does once they receive a new sales contract is to perform a title search. This is a process of searching all previous records of the existing title history for the property. 
  • Recording Fees - The title company will record the deed and any other relevant documents with the county recorders office. This fee will usually be passed on to you at closing.
  • Owner’s Title Policy - The cost of the Owners Title Insurance Policy is a percentage of the sales price, and can be paid for by the buyer or seller, as indicated in the Sales Contract.
  • Mortgagee Title Policy - The Title Insurance Policy for the buyers mortgage company is also calculated by a percentage of the sales price.
  • Flood Certificate - This is required in areas where heavy flooding can occur. The fee will vary based on the state.
  • Escrow Fee - This is the fee that the Title Company charges for their services in processing your file.
  • Tax Certificates - The Title Company will order tax certificates from the appropriate office to show the payment history and what taxes are owed. The Buyer will pay for the taxes from the date of closing through the end of the year, and they may be included in your mortgage payment.
  • Document Fees - There are several documents that will need to be prepared for your transaction, these will vary according to your situation but can include the Deed, Deed of Trust, Notice to Purchaser, various Affidavits, and others. 
  • Recording Fees - Some of the documents generated, such as the Deed, will need to be recorded at the County Clerks office, these fees are passed on to the buyer and seller. 

 


COMMON HOME OWNERSHIP EXPENSES

Home Ownership ExpensesThese are the fees involved with owning a home. These expenses can be a surprise to first time home owners if they have previously been renting. Make sure that you are aware of these expense when purchasing a home.

  • Home Owner's Insurance - This expense is required by your mortgage company because it protects their asset (your home). Home Owners insurance will vary based on the policy that you choose, but expect it to be at least $1,000+ per year, based on the value of your home. It is commonly escrowed into the monthly mortgage payment.
  • Property Taxes - This expense can vary greatly based on the state, municipalities, and neighborhood  of the home that you purchase. New neighborhoods typically have higher taxes. Some states have property tax rates as high as 6% of the homes value.
  • Home Owner’s Association Dues - This expense is only relevant to properties in neighborhoods with a home owners association. The fee is paid by the residents of the neighborhood to pay for all neighborhood maintenance and operating fees. This expense will vary greatly, based on the amenities of the subdivision or community that you purchase in. Town homes and condos can have much higher fees, because they typically take care of all the exterior maintenance and lawn care.
  • Property Maintenance & Repairs - When you rent real estate, most of the repairs are covered by your landlord or property management company. When you own real estate, you are responsible for repair costs, so make sure that you have some money set aside to handle these issues when they arrive.
  • Home Warranties - You can purchase a home warranty as a way to safe guard yourself from repair expenses in the future. Home warranties are extra protection on top of your home owner’s insurance that usually cover smaller items not covered in you home owner’s insurance policy.
  • Appliances and Fixtures - The most common items that need replacing in a home are appliances and fixtures. Refrigerators, washer/dryers, overs, microwaves, ceiling fans, and lighting fixtures are all usually replaced at some point in time. Knowing the value of these items can be very helpful when considering purchasing a home.
  • Property Updates - If most of the homes for sale in your neighborhood have granite countertops, marble backslashes, and custom decks, then you will want to have these items in your home when you are ready to sell, in order to insure that you get top dollar for your home. There is an endless list of potential property updates. Do your research and make sure to only update the items that will guarantee a return later when you sell. Don’t overdo it!
  • Lawn Services - Lawn equipment, landscaping materials, and lawn maintenance can vary greatly based on the property that you purchase. I recommend researching these expenses before purchasing a home to know what you are getting into.
  • Basic Utilities - Water, gas, and electricity costs can vary from place to place. It is wise to ask for an estimate of utility costs from the owner before purchasing a home it you are concerned about these expenses. Water fees can vary dramatically in Colorado, so make sure that you look into this fee before purchasing a home.

 With the information above, you should be able to estimate your extra home buying fees and be prepared ahead of time. These fees will vary from state to state, so make sure to ask your local real estate professional about them.

If you have any questions, or need any real estate assistance in the Colorado Springs area, please do not hesitate to contact me. I'm always here to help if you need me.

 

5 Common Fees Associated With Buying Real Estate


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Andrew Fortune Great Colorado HomesHi there! I'm Andrew Fortune, a REALTOR in Colorado Springs, CO and the owner of Great Colorado Homes. Real estate is a passion of mine. I enjoy writing for home buyers and sellers to help simplify the process in a visual format. I also enjoy writing for Realtors and sharing some of the technology tricks I've learned over the years. Feel free to contact me directly, or leave a comment in the comment section below. :-)

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11 Responses to "The 5 Most Common Fees Associated With Purchasing a Home"

Jayne Meaut wrote: I never been involved in a sale where the lender along with myself as the buyer's agent didn't go over the closing HUD before closing. This sounds like someone wasn't paying attenttion.

Posted on Tuesday, October 14th, 2014 at 10:54am.

Andrew Fortune wrote: You're correct Jayne, someone was not paying attention to this particular buyer's needs. It is possible that this was simply a "difficult" buyer who would not listen to their Realtor, or loan officer(s), but most likely it was just a neglected home buyer who was not given the proper information to prepare them for the closing. Unfortunately, it does happen.

Posted on Tuesday, October 14th, 2014 at 11:44am.

Kathy Batesel wrote: This is a well written article that I will share with others, but I'd like to add something that you could have told the buyer without threatening your seller's best interests: The lender had a legal obligation to provide a good faith estimate (GFE) within three days of them completing their application. If they were not provided one, the lender may be forced to eat the costs (and possibly even more.) I closed one just last week where the lender forgot to add the appraisal fee on the GFE and as a result, paid for that portion of the buyer's closing costs. I am not sure who would oversee this, but a buyer could begin by talking to their agent or to the title company or attorney who handled the closing, speaking to the compliance department at their lender's company, or by hiring an attorney of their own. I am not an attorney and none of this should be construed as legal advice. I am a real estate agent in Kansas and Missouri.

Posted on Tuesday, October 14th, 2014 at 11:51am.

Andrew Fortune wrote: Kathy, thank you for your comments. Very good points! It is possible that the home buyer received the GFE from the lender, but never reviewed it or understood it. Your advice is great for buyers who may never receive the GFE though. I know the rules are also about to get even more stringent on lenders to get the GFE and HUD-1 in even less time next year.

Posted on Tuesday, October 14th, 2014 at 12:21pm.

RUTH Aragon-Angel wrote: Hello Andrew, I appreciate all the information you sent thru this e-mail. I have purchased 4 homes in my lifetime, I am very aware of the fees involved, inspections, in my case I am now in the process of speaking to my banking representative, and getting pre-approved for a loan to downsize and relocate to Colo Springs. I will be selling my home in Pueblo, and have equity on my house that will be a good down payment on the new home. Moving is not a problem, have that covered. One question I do have. Is it acceptable to start looking at properties before listing my house. I want to get an idea of what is available in the location I prefer to live in the Springs. I dont believe I will have a problem in selling my home. I appreciate your feedback.

Posted on Sunday, January 18th, 2015 at 8:19pm.

Andrew Fortune wrote: Hi Ruth. It is perfectly normal to look at homes before listing your house for sale. You'll want to know what your options are ahead of time. I'll message you to set up a convenient time to meet with you and show you some of the properties that you are interested in around Colorado Springs. Thanks Ruth!

Posted on Monday, January 19th, 2015 at 8:38am.

Allwyn Pesek wrote: Andrew,
These are great articles - is it ok for me to share with my clients? With credit to you, of course!
Allwyn
Realty Pros of Texas
Katy,TX

Posted on Wednesday, February 4th, 2015 at 8:58am.

Andrew Fortune wrote: Absoutely, Allewyn. Feel free to share them with anyone you feel could benefit from them. :)

Posted on Wednesday, February 4th, 2015 at 9:39am.

Lisa Priest wrote: Great article! Hidden costs that many buyers never think about!

Posted on Wednesday, March 4th, 2015 at 5:00pm.

Brittany wrote: This was a very informative post, thank you very much! As a first-time home buyer I have so much to learn about this process! I will be saving your post for reference!

Posted on Friday, May 6th, 2016 at 10:42am.

Don wrote: Great information. I wish people would give you credit for your work instead of stealing content. I found this article on another Realtors site who had obviously stole it from you.

Posted on Friday, May 6th, 2016 at 7:00pm.

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