Purchasing a home is an exciting time, and the anticipation of moving into a new place is often tangible.
However, buying involves more than just finding your dream home; it also requires being prepared for the out-of-pocket expenses associated with it. The costs and fees can be numerous, making it crucial to understand what you have to pay before entering into a sales contract. Review this guide to familiarize yourself with some of the most common add-ons you may come across during the homebuying process.
Mortgage Lenders charge a variety of fees to secure a loan; which ones apply to you will depend on variables such as the amount of your down payment and your loan program.
Appraisal
Your lender will require a licensed property appraiser to verify your home’s value; the cost of which is then passed on to you.
Discount point
Many lenders provide programs that allow you to reduce your mortgage interest rate by prepaying for discount points—the cost of each point is equivalent to 1 percent of the loan amount.
Origination fees
These charges are imposed by your lender to cover the expenses associated with handling your loan. On your closing statement, you’ll often see itemized fees such as the application and underwriting fees, while the origination fee encompasses the costs associated with handling your loan.
Private mortgage insurance (PMI)
If your down payment is less than 20 percent, your lender will likely require you to purchase PMI.
Although this is a monthly charge rolled into your mortgage payment, sometimes there’s an up-front, one-time premium charged at closing.
Rate lock
Depending on your loan terms, you may have the option to lock in your interest rate for a set duration, typically thirty to sixty days. The fee for a rate lock ranges from 0.25 percent to 0.50 percent of your loan amount.
Survey
To ensure there are no encroachments or easements affecting the use of your property, your lender will require a survey to verify the property’s boundary lines.
Title insurance
Lenders require a title search to be conducted on the property. Once it’s been verified that there are no liens or other conflicts, you’ll need to purchase title insurance. There are two primary categories of policies: lender’s title insurance and owner’s title insurance.
Lender’s title insurance
Borrowers must purchase this policy so the lender is guarded against future legal claims such as unpaid taxes or contractor liens. These fees are government mandated and generally range from 0.5 percent to 1 percent of the home’s purchase price.
Owner’s title insurance Buyers often seek extra protection by getting an owner’s title policy to shield themselves from any claims that may arise after the purchase. The fee can range from just a few hundred dollars to several hundred dollars; nevertheless, it can be well worth the investment.
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