There are a number of additional costs you need to take into consideration when purchasing a home. These will fall into several categories:
- Mortgage Related Costs
- Pre-Paid Costs
- Attorney / Title Related Fees
Mortgage Related Costs
You will want to discuss these with the company providing your home loan as there are several components of this and they can vary significantly depending on your lender and the type of loan.
In some instances, there will be a Loan Origination Fee (a fee charged by the lender to create the loan). When applying for a mortgage, the lender should provide details on these and all other mortgage related costs, so it’s always good to get at least 2 quotes from mortgage lenders so you can compare these costs.
You will also generally be responsible for a series of fees related to the mortgage lender evaluating the risk of the loan (these costs can include: the cost of a credit report, an appraisal of the property to verify it value, a flood certification to determine whether the property is in a flood plain, fees related to setting up a property tax escrow account).
Depending on the loan you take out, you may also pay “points” on the loan. This is an upfront fee paid to the lender that lowers the interest rate you will pay (stated as a dollar amount per $1k, .8 points would equal .8 dollars per thousand or $800 for a $100k home).
Pre-Paid Costs
Your mortgage lender will generally require that you deposit a % of your annual property taxes and property insurance into an escrow account (from which these expenses will generally be paid going forward). While this isn’t a true cost since this money will be applied to future property tax / insurance expenses, it does require that you have enough cash at closing to cover these. Depending on the price of your home and real estate tax rate, this could amount to several thousand dollars at closing.
Attorney / Title Related Fees
You will need to pay several fees to do a title search and insure the title for the home. This is required to ensure there is no outstanding debt against the property.
There will also be fees associated with recording the change in deed.
Summary
While these is significant variability in the amount of closing costs you will be required to pay, you likely want to assume that you will be required to by ~1.5% – 3% of the price of the home in closing costs (including pre-paid expenses). You will want to make sure you have some additional cash on hand (in excess of the down payment) to cover these costs.