When buying a home, most people focus on the price of the house and what interest rate they can get on their mortgage loan. While knowing those costs are very important, they aren’t the only expenses you’ll come across on your homebuying journey.
Some fees must be paid upfront and require careful planning and budgeting before your home purchase. Other fees can be rolled into your home loan and paid as part of your mortgage payment. Understanding both sets of fees is critical to ensuring a successful, affordable home purchase.
Below, we've listed a few of the important fees you'll encounter during your homebuying process!
Closing Day Costs
On closing day, you’ll owe a variety of fees to the seller, your USA Mortgage lender, the surveyor, the appraiser, and other parties. These will all be outlined in your closing disclosure, which you should receive at least three days before your closing date. To get an idea of these costs earlier in the process, look at your loan estimate, which you should have received after initially applying for your mortgage loan.
Your down payment will probably be the biggest expense you’ll have when closing your loan. Though some loans (like USDA and VA loans), require no money down, the majority of homebuyers will need a down payment of at least 3% (on conventional loans) or 3.5% (on FHA loans).
Lender-based Origination, Underwriting, and Application Fees
An origination fee is paid to your USA Mortgage lender for their services in creating the loan. You also may owe an underwriting fee, an application fee, and a fee for your credit report.
In some cases, you may opt to pay discount points—which cost 1% of the loan—to lower your interest rate and monthly payment. These points are paid to the lender at closing as well.
You will also pay several fees related to the title of your home. You’ll usually see charges for a title search, title settlement, title insurance binder, and title insurance. You’re allowed to shop around for your title services if you want to negotiate lower rates.
Title insurance is designed to protect the lender in case an issue arises with the title to the home you're buying. You're usually required to buy a lender's title insurance. Title insurance for yourself is optional, but it's something to consider if you're worried about a title issue affecting your ability to keep the home after the fact.
Survey and Appraisal Fees
If an existing survey of the land you’re buying cannot be obtained, a new survey will be conducted to determine the exact boundaries of the property. These usually cost around $500, but like title services, you’re free to shop around for them.
An appraisal is also typically needed so that your USA Mortgage lender can justify the money they are lending you. This appraisal is one fee you'll pay to the lender upfront before the appraisal can take place. It typically costs between $300 and $400.
State Recording Fees
Depending on where you live, there may be a fee required for recording and holding the information regarding the sale with your county register of deeds. There may also be a charge for transferring the property from one owner to another.
Prepaid Property Taxes, Homeowner’s Insurance, and Interest
You’ll also owe money toward property taxes and homeowner’s insurance. You can expect to pay for at least 12 months of home insurance upfront and six months of taxes. You will also need to pay insurance on your loan for each remaining day of the month.
Private Mortgage Insurance (PMI)
You may be required to purchase mortgage insurance, depending on what type of mortgage loan you’ve taken out. Mortgage insurance is required on all FHA and USDA loans and may be required if you’re putting less than 20% down on a Conventional Loan.
You may be required to pay an upfront mortgage insurance premium, as well as pay a monthly premium once you own the home. Most of the time, the upfront premium can be rolled into the loan. Just remember that rolling this payment into the loan (and the monthly PMI premiums) can affect the size of your mortgage payment.
During the closing process, an escrow account will usually hold the money while the buyer and seller finalize the agreement. You’ll probably have a portion of your monthly mortgage payment go into escrow to pay for property taxes and insurance. Essentially, you prepay some of the homeowners insurance and property tax costs for the home ahead.
Each month, part of your mortgage payment is diverted to this escrow account so that your annual property taxes and homeowner's insurance premium can be paid on their next due date.
Pest or Mold Inspection
The purchase of an older home may require an inspection for pests such as termites, as well as mold. This requirement can vary by location, and the cost usually runs between $50 and $280.
If you’re using a real estate agent, you may have a commission charge to cover. The sellers often pay these fees, but in some cases, the fee comes out of your pocket. Make sure you understand your agent’s commission structure before signing any contract. Most real estate transactions require a commission of 6%—or around 3% for each agent involved.
Other Fees You May Encounter
- Home inspection - This won’t show up on your closing disclosure, but it’s a cost you should plan for if you want to make sure your home’s a good investment. These cost anywhere from $278 to $391.
- Flood-related fees - If you live in a flood-prone area, you may need to pay flood determination, certification, or monitoring fees.
- HOA costs - If your property is located within an HOA, you might have dues, processing fees, transfer fees, and more.
- Warranty - If you’re purchasing a home warranty to protect your home and its systems, this will be charged at closing.
Keep in mind that not all of these fees will always apply and may vary from state to state. Some may be waived or paid for by the lender or home seller. Regardless, you must understand what the fees are and who is responsible for paying them.