Common Expenses Associated With Buying a Home
February 16, 2024
If you're a homebuyer in the Raleigh-Durham Triangle real estate market, knowing about closing costs that come with buying a home can help you have a successful and stress-free home buying experience.
Many first-time homebuyers are often unaware of the costs involved in the process beyond the down payment and mortgage payments.
This article will highlight some common closing costs you should expect to encounter when purchasing a home, but always refer to your local real estate expert to get a clear understanding of expenses relevant to your unique situation.
As a professional real estate agent in the Raleigh-Durham Triangle area, I have helped numerous buyers navigate real estate transactions successfully.
Based on my experience, here are some common expenses buyers are likely to encounter during the closing process.
Home Inspection Costs
When you finally find your dream home, it's important to make sure that it is in good condition. A home inspection provides a professional evaluation of the overall structural integrity and safety of the property.
In some cases, a home inspection could uncover potential issues such as faulty wiring, HVAC issues, and plumbing problems, among others.
A home inspector will conduct an in-depth inspection of the property to assess its general condition and report any issues found.
For buyers, a home inspection is paramount, as it offers an opportunity to spot any potential problems and to decide whether or not to proceed with the purchase.
Costs associated with home inspections could range between $300 and $600, depending on factors such as location and size of the property.
For example, suppose you find a home in an area with natural wear and tear or poor drainage.
A thorough inspection during the purchase process could identify any potential issues, including mold, water damage, or foundation cracks that could cause problems down the line.
An inspection report is a critical tool that a buyer can use during the negotiation process. Additionally, inspection findings could impact the purchase price or lead to repairs or lease incentives before closing.
Partnering with a knowledgeable real estate agent, such as myself and my team, can help you navigate the home inspection process and ensure that your interests as a buyer are kept well-protected.
When you're buying a house, most lenders require a home appraisal before approving the mortgage loan.
The appraisal is designed to determine the true worth of the property and whether it is sufficient to serve as the collateral for the mortgage loan.
The appraisal process involves assessing various factors, including the location of the property, its overall condition, and the property trends in the area.
Appraisal fees usually average between $300 and $500, depending on the location, type, and size of the property.
Additional factors that can influence fees include the appraiser's level of experience and the complexity of the appraisal process.
For example, suppose you're buying a home in a hot real estate market in Raleigh, North Carolina.
In that case, the appraisal could cost more due to demand and competition. Similarly, suppose you're buying a commercial property.
In that case, the appraisal process could be more complicated and require more sophisticated evaluation techniques, leading to higher costs.
Investing in a proper appraisal is an excellent investment as it can help determine the actual worth of the property, identifying areas where you may need to make repairs or renovations before purchase.
Having a clear understanding of what your home's worth is, and what your lender thinks it's worth, will prevent you from overpaying for a property or securing a mortgage with a higher interest rate than you should have.
At the end of the day, an appraisal is beneficial for both buyers and lenders, offering transparency and clarity regarding property value.
Title Search and Insurance
Before purchasing a property, performing a title search is essential to determine if the property has a clear title.
A clear title, in real estate terms, refers to ownership without any legal problems such as liens or outstanding claims that could arise in the future.
Title search costs typically depend on the property's purchase price and may range from $300 to $1,000.
These include expenses associated with accessing public records, researching historical documents, and ordering required certificates or affidavits.
Once the title search is complete, a buyer may choose to take out title insurance to protect themselves against any legal issues that may surface after the purchase.
Title insurance premiums are typically a one-time payment that varies depending on the title company used, the property’s value, and the transaction size.
The fees are generally 0.5% to 1% of the property's purchase price.
For example, You found your dream home, and you scheduled an inspection that came out excellent, and the appraisal demonstrated it was worth the asking price.
A title search reveals that the property owner signed a lien waiver with a contractor, but the contractor never filed the waiver with the county clerk.
The lien was for work performed before the sale, and a title search revealed it.
The rest of the sales process could not proceed without settling the lien, which costs much more than the correct filing of the lien waiver.
Title searches serve an important purpose in ensuring you buy your new property free of legal problems.
Although buyers usually cover title search and insurance costs, title insurance also protects lenders in case of any legal issues or claims that arise.
Having a clear title and title insurance provides the perfect foundation for a successful real estate investment.
Loan Origination Fees
When you take out a mortgage loan, the lender charges you an origination fee, which is usually a percentage of the loan amount and covers expenses associated with processing your mortgage application.
The origination fee is usually between 0.5% and 1% of the total loan amount and could range from several hundred to a few thousand dollars.
Lenders often use origination fees to pay for various tasks that take place before mortgage approval. These tasks may include credit checks, property appraisals, processing fees, underwriting fees, and administrative expenses.
For instance, let's say you want to buy a house and choose a lender to handle your mortgage loan.
After that, the lender will ask you for a mortgage application and then process it.
They’ll work on paperwork, underwriting, and also checking your credit history to assess whether you qualify for the loan.
All these processes carry different types of costs that depend on the lender's policies and the loan amount. Origination fees ensure that the lender reimburses those efforts.
When you're taking out a mortgage loan, understanding loan origination fees helps you comprehend what to expect and how to prepare.
It's important to keep in mind that these fees affect the total amount borrowed, and you should consider negotiating the fee or finding lenders with lower fees.
And, of course, working with an expert real estate agent can help you navigate the complicated process while ensuring you receive the best deal possible.
Property Taxes and Insurance
When you become a homeowner, you assume various financial responsibilities, including paying property taxes and buying insurance on the property.
Property taxes can vary significantly based on the location and value of the property. In Raleigh-Durham Triangle area, property taxes charge within defined city and county limits.
The higher the value of your property, the more you will pay taxes. Typically, property taxes are recalculated and payable at the end-of-the-year tax period, and you can pay them annually or roll them into your mortgage payment.
Additionally, property insurance is another essential expense required of homeowners.
Insurance policies usually cover losses and damages caused by theft, natural disasters, and other unforeseen incidents.
The average cost of homeowners' insurance in the Raleigh-Durham area typically falls around $1000 per year.
It's worth noting that insurance premiums vary by factors such as the value of your property, its location, and the type of coverage chosen.
For example, suppose you own a property in a flood-prone area or an area that has a high risk of natural disasters such as hurricanes or earthquakes.
In that case, you may pay higher insurance premiums because these are riskier homes to insure, and there is a greater likelihood of filing claims.
Considering property taxes and insurance is crucial when budgeting for a new home.
You want to ensure that you can afford the additional expenses that come with homeownership while covering your monthly mortgage payments.
During the closing process of a property purchase, an attorney can play an integral role in facilitating the transfer of ownership and ensuring compliance with legal requirements.
The attorney reviews and prepares legal documents, verifying their accuracy and ensuring you understand the legal implications of the transaction.
The attorney may also review contracts relating to the transfer of ownership, ensure that all outstanding issues have been addressed, and confirm the terms of the deal before closing.
Additionally, the attorney can work with the involved parties to review and manage fund transfer and facilitate any legal or contractual negotiations that arise during closing.
The fees charged by attorneys vary based on the complexity of the transaction and the overall scope of work.
In Raleigh, North Carolina, where I'm based, attorney fees can average between $500 to $1,500 per closing.
For instance, if you are buying a property as a foreigner, an attorney may need to help you navigate any restrictions related to foreign investments in the United States and ensure compliance with local laws and regulations.
If you're purchasing a condo or a co-op, an attorney will review all the necessary documents to ensure the sale complies with regulations and laws specific to those particular properties.
In these cases, legal fees may be higher due to the additional complexity and research required.
As a buyer, it's essential to have an attorney on your side to ensure your transaction is completed in compliance with state and federal laws while protecting your best interests.
It's important to discuss attorney fees upfront with the attorney or real estate agent to avoid any surprises.
By working with an experienced local real estate agent, such as myself, you can receive recommendations on attorneys and other experts who can assist you with the closing process.
Final Thought From Tim
As a real estate expert, I understand that closing costs can be overwhelming. But with the right team by your side, they don't have to be.
By working with our highly experienced team, you can ensure that you're prepared for the closing costs that come with purchasing a home.
At the Tim M. Clarke Team, we believe that transparency and communication are the keys to success in the real estate business.
From title search and insurance to appraisal and loan origination fees, we will help you understand all aspects of the closing process and ensure that you're prepared to make informed decisions that maximize your investment.
We take pride in offering personalized service tailored to meet your individual needs and preferences.
By partnering with us, you can rest assured that you're in good hands and that our team will go above and beyond to help you achieve your dream of homeownership.
If you're ready to take the next step in your home buying journey, don't wait to contact us.
We'll provide you with the proper information and strategies to navigate through the closing costs process and make it a stress-free experience. Let us help you land your dream home, today!
What are closing costs for buyers?
Closing costs are the fees and expenses that you need to pay at the end of a real estate transaction. They typically include items like loan origination fees, title insurance, and property taxes.
What are the typical closing costs for buying a house?
Typical closing costs for buying a house can range from 2% to 5% of the purchase price of the home. They can include fees for loan origination, appraisal, title search, title insurance, surveys, taxes, and credit report processing.
Do closing costs include down payment and escrow payments?
No, closing costs are separate from the down payment and escrow payments. While the down payment is the upfront amount you pay towards the purchase price, closing costs cover the fees and expenses related to the transaction process.
What closing costs can I expect when buying a home?
When buying a home, you can expect closing costs such as loan origination fees, appraisal fees, title search fees, title insurance, surveys, taxes, and credit report processing fees.
How much should I budget for closing costs when buying a house?
It's generally recommended to budget between 2% to 5% of the purchase price of the home for closing costs.
Can closing costs be negotiated when buying a home?
Yes, some closing costs can be negotiated. For instance, you can negotiate with the seller to pay some or all of the closing costs.
What closing costs are pre-paids vs fees at closing?
Pre-paids are expenses that are paid in advance at closing, like homeowners insurance and property taxes. Fees at closing typically include loan origination fees, title insurance, and appraisal fees.
How can I estimate my closing costs before making an offer?
You can ask your lender for a Loan Estimate, which is a document that provides an estimate of your closing costs. This can be done before making an offer on a home.
Are closing costs tax deductible for home buyers?
Some closing costs may be tax-deductible, such as mortgage interest and real estate taxes. It's best to consult with a tax advisor to understand what applies to your situation.
How can I reduce my closing costs when purchasing a home?
You can potentially reduce your closing costs by negotiating with the seller to pay some or all of the costs, shopping around for the best rates for services like home inspections and title searches, and asking your lender about no-closing-cost mortgages.
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