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11 Expenses That Come with Buying a Home

Buying a home is one of the biggest decisions a person makes in their lifetime. It is an intimidating milestone that not everyone achieves. Whether it is due to the complicated process, not having adequate funds, or a low credit score, there are many reasons people are unable to reach the dream of owning a home. The biggest obstacle that keeps people from buying a home is money. Being unaware of each of the expenses that come with buying a home causes people to hesitate beginning the process. They assume the cost is too much. But without the full knowledge, you will not know whether or not you can afford a home. Here are 11 expenses that come with buying a home. By knowing these expenses, you can determine whether or not buying a home is for you.

  1. The property. As anticipated, the largest expense in the home buying process is purchasing the actual home and property. Every area is going to have different types of homes for a wide range of prices. In San Diego, the median price for a home listed on the market is $499,900. The median price of homes being sold is lower, at $463,050. If you are in a position where you are tight on money, you are going to be able to find many homes under that median. In looking at each square foot of property, the median cost for 1 square foot of land in San Diego is $360. In San Diego Metro, the median price is lower, at $292. Buying smaller homes, with less square footage in San Diego Metro is going to be cheaper option.
  2. An earnest money deposit. This deposit is used to ensure the home seller that you are serious about purchasing their home. If there was no earnest money deposit, homebuyers could take advantage of home sellers by talking to seriously talking to multiple home sellers at the same time about purchasing their home. In this case, multiple home sellers could take their home off the market excepting the homebuyer to purchase their home. The homebuyer receives the advantage of having the time to decide which home they would like to purchase with all of the homes off the market. But only one of the home sellers is going to reap the benefits from the one homebuyer. With an earnest money deposit, the home sellers are assured that the homebuyer is serious about their home only. This money is typically used for the homebuyers down payment. You should expect to pay around 2-3% of the entire price of the home. The better the housing market is in your area, the more the earnest money deposit will be.
  3. An escrow account. This account ensures the mortgage company that you have the funds to be able to purchase a home. The money deposited is used to pay taxes and insurance regarding the home. The lender determines the amount a homebuyer has to pay. They will base it off the location of the home and the type of loan received. Each month, the homebuyer will pay the amount required, typically around 10% of the property taxes and 10% of the insurance premium. Then, when it comes time to pay for each of these expenses, the lender will pay for it out of your escrow account. Every home purchase does not necessarily have an escrow account. An escrow account is generally used if a homebuyer makes a down payment that is less than 20% of the home and always used if the homebuyer decides to take out an FHA loan. With VA loans, a homebuyer does not need an escrow account.
  4. Private Mortgage Insurance. This expense can be avoided if you make a down payment that is more than 20% of the price of the property. However, if you pay less than 20%, you are going to have to buy PMI. PMI is used to protect the lender if you become unable to pay your mortgage. The amount you have to pay depends on the lender, your credit score, and your loan-to-value ratio. The homebuyer will no longer have to pay PMI once their loan-to-value ratio increases to 78%. The more common and less costly methods to pay PMI are through monthly payments or a single premium.
  5. An origination fee. Unfortunately, there are many fees that come with taking out a loan. This fee goes to the lender or bank for processing your loan. The lender or bank is being paid for the work they have to do to set up your mortgage. The fee is commissioned based, generally around 1% of the loan. In order to keep their customers happy, lenders tend to have smaller origination fees for larger loans. For example, if you are borrowing $150,000 from a lender, then with a 1% origination fee, you would have to pay $1,500. But if you were borrowing $250,000, your origination fee could be 0.5%, reaching $1,250. As the homebuyer, it is important to shop around for a good lender and bank. Companies are going to charge different amounts for their services.
  6. Having an inspection completed. Unless you are an expert home inspector, who knows the inside and outside of a home, it is best to hire a professional to search a home before purchasing one. In comparison to the other expenses, a home inspection does not cost a significant amount of money, reaching to approximately $200-$300. An inspection is going to be well worth the money as it could save you from buying a home that has a problem that costs thousands of dollars. In a typical home inspection, the inspector will search the home for serious problems: structure damage and water leaks. You can also have more specific inspections (toxic gases, pests, etc.) done for an additional few hundred dollars.
  7. The appraisal fee. An appraisal is used to determine the value of your home. This step is very important in the home buying process. It ensures both the buyer and the lender. When an appraisal is done, the true value of the home is made known. This means that the seller cannot price the home higher than the homes real value. The buyer is not going to be paying more for a home than it’s actually worth. An appraisal ensures the lender because if the buyer has trouble paying their mortgage, the lender will know the amount they should be able to receive for the home if they have to take possession of it. The fee is around $300. You pay to have an appraiser go to the home and determine it’s worth. The lender receives the information from the appraiser.
  8. A credit report for your lender. As you prepare to purchase a home, you are able to receive a free credit report from one of three companies: Equifax, Experian, and TransUnion. These companies are required to provide you with a free credit report each year when you ask for one. However, though you can receive a free credit report, your lender cannot. Prepare to spend $20-$40 to pay for your lender to receive your credit report. Why is it important that a lender have your credit report? Based on the results of your credit report, lenders will decide if you should receive a loan. That is why it is also important that before you even begin the loan process, you receive your free credit report and make sure there is nothing keeping you from receiving a loan.
  9. Changing the property title. In order to transfer the property title over from the previous homeowner to you, there is a small fee. For a transfer to occur, the property has to be free of any holds. There are various types of transfers, depending on who previously owned the property and who the property is being transferred to. The most common types of holding titles for homebuyers are a joint tenancy, tenancy in common, and sole ownership. The homebuyer has to file a Change in Ownership Statement or a Preliminary Change of Ownership Report in order to change the property title. Negotiate with your seller about who is going to pay this fee. It is not always the buyer’s responsibility.
  10. A survey of the land. As you prepare for a loan, some lenders may require the homebuyer to pay for a surveyor to complete a survey. The survey provides an official report of the property lines. Typically, a survey should been completed for the previous homeowner and be included in their reports. However, if there is not one available to you already, then you should pay for one. It costs around $100-200, but depends on factors like the size and value of your property. Knowing the exact property lines are important in order to avoid any disputes on the perimeters of your land.
  11. A mover. Not a requirement in buying a home, but paying for a mover is a decision for you to make. Once a sale is complete and it is time to move all of your belongings to the new home, you have to consider how you are going to transport your belongings. Unless you have an automobile that is going to be able to carry your heavy, large items and people to transport the items on and off the automobile, a mover is your best option. It is difficult to predict how much a move is going to cost. There are too many factors that contribute: the number, size, and weight of your belongings and the distance from your old home to your new home. Have a mover come to your home and inspect your belongings to provide you with a quote. You will want to know the maximum amount you will have to pay for your belongings to be moved. There are a few extra fees you should ask your mover about: climbing up and down stairs, parking, fuel, storing, and any irregular items being moved.

Reading through all of the expenses can be intimidating. Buying a home is not for the faint of heart. The process is long and draining. But buying a home is an investment. A home is a piece of property that can stay with you for a lifetime. It gives you ownership: with the power to make your home the way you want it. Each of these expenses is for the benefit of someone in the home buying process. For the homebuyer, the fees make sure that you have the funds necessary, the property is in good condition, and that the purchase is legal. Though the expenses add up quickly, the benefit of a home lasts longer.

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