August 27th, 2019
You’ve constructed the perfect home for you and your family: three bedrooms, three bathrooms so no one has to fight over a shower schedule, a big backyard but not so big that lawnmowing becomes a hassle, and a large deck you can relax on. It’s your perfect home and with the help of your Hearndon Construction real estate agent, it is right within the budget you set. But before you get too excited about moving into your brand new address, you’ll have to go through a process that costs quite a bit more than just the cost of the house. There are some expenses that will fall on the seller, some that you will split with them, and still others that are solely your responsibility. Throughout this article, we’re going to use this example: you’re looking at a beautiful $400,000 three-bedroom, three-bath in Dominion Meadows in Chesapeake, Virginia. Let’s get started!
Let’s say you have to make a down payment on the house of at least 20% of the home’s value. You pay that 80,000 leaving you with a $320,000 loan that you’ll pay off over 30 years with an interest rate of 4%.
When considering different lenders for your standard 30-year, fixed-rate loan, who you choose doesn’t matter as much as what services and technology they offer and what their rates and fees are. Even though the industry standard is currently right around 4%, different lenders, whether they are major banks, credit unions, or mortgage brokers, will hover around that figure with different packaging offers.
Jumping back to our example of the dream house in Dominion Meadows, you would pay a $3,200 origination fee which would cover the costs of processing your application, underwriting and funding the loan. The amount of the origination fee usually varies but falls between 0.5% and 1% of the loan amount. This fee, along with other mortgage closing costs will appear on your loan estimate which the lender is required by law to present to you within three business days of receiving your application. This will give you a pretty accurate idea of what it’ll cost to buy this property before you pay for the inspection or appraisal.
A 20% down payment is pretty standard for purchasing a home but if you were to secure a loan where you’d pay less than 20% of the purchasing price, you’d need mortgage insurance to lessen the risk for the lender. This will be paid at closing or billed into the monthly invoices.
Surveys are not universally required but they are simply another way for lenders to verify that a property is a sound investment as far as loan security goes. Sometimes this will also entail an examination of the land and structure boundaries in comparison to their descriptions on legal documents.
Inspections are different from surveys in that they are a required part of the mortgage process and they focus on the integrity of the house. For your Dominion Meadows home, the home inspection would cost about $400.
Certain parts of the inspection will apply to the property you’re looking at more than others but typically they’ll include mechanical – heating, plumbing, electrical – as well as structural and pest inspections, depending on the particular issues that are locally prevalent.
After the inspection, you may request that the seller make some repairs based on the findings of the inspection or lower the home’s price. If they do not agree to this, you might abandon the contract and obtain any earnest money back.
Before a lender will sign off on a loan, they will demand an appraisal that’s carried out by a third-party to evaluate the home’s worth. For the Dominion Meadows home, this would cost about $300. This assessment is basically to affirm for the lender that if you default on your loan payments, they can gain back that borrowed amount by selling the house, which serves as collateral for the loan.
Transfer taxes are essentially a sales tax on real estate and are therefore calculated as a percentage of the sale price. Your location in the nation – because it varies widely across the country – will determine how much and who pays them. Let’s say that the percentage on your Dominion Meadows home is 3% of the selling price equaling $12,000.
These are also due at closing and can be arranged by either an attorney or a title company, depending on the state. For the Dominion Meadows house, this is $200.
Escrow accounts are set up at closing to hold funds for property taxes and homeowners insurance. You will either reimburse the seller for levies already paid or receive credit from the seller to cover the tax for the months he or she occupied the house. For the Dominion Meadows house, you set $2,000 aside in escrow and give $5,000 to the seller for property taxes.
This is yet another form of insurance you need which shields you and the lender in the case of a dispute brought up about the house’s ownership. In some states, the seller pays a portion of it while in others, the buyer pays it in full. The title insurance on the Dominion Meadows home is $2,700.
So, on this fateful day when you become the new owner of a $400,000 residence, you have also amassed $25,800 in closing expenses, third-party costs, escrow funds, and other fees, plus the 80,000 down payment you parted ways with.
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