No matter your tax bracket or life circumstance, buying a new custom home is one of the largest financial transactions you’ll make. There’s no dismissing that fact, but if you’re a first-time buyer, you should understand that it-costs-lots-of-money means more than simply a big outlay of cash. For example, your credit health must be good. You must be approved for a mortgage. You must be able to make a down payment to activate your mortgage. But you also must pay obligatory transaction fees during the home-buying process. Here’s a primer so you won’t have to say, “but nobody told me!”
Mortgage application fees probably are the first things you’ll pay. A lender charges you to start the application process and for running your credit reports to kick it off. These fees usually are combined as the mortgage application fee.
Origination fees are charged by the lender for providing you with a home loan. Think of it as an initiation fee, similar to the one you paid to join your gym. Origination fees cover the application, research and funding of your loan. Expect these fees to appear as a percentage of the loan total.
Private mortgage insurance is mandatory for new home buyers whose down payment is less than the industry-standard 20 percent of their loan total. Mortgage insurance keeps your lender from losing money if you default on your loan and your home goes into foreclosure. It’s the price you pay if you don’t make a 20-percent down payment.
You read that correctly. Certain tasks must be completed to buy a house, both for your protection and to satisfy all legal and financial requirements.
Survey fees cover the measuring of your new property by a professional surveyor. It establishes the official measurements and boundaries.
Appraisal fees also establish “official information” — an estimate of your new property’s market value. Your mortgage lender chooses the appraiser and is required to give you a copy of the appraisal (which hopefully aligns with the value of your offer price or your mortgage, if the appraisal is one of the last steps before the mortgage is enacted). But, you pay the fee.
Tax service fees cover the cost of investigating the property-tax situation for your new home — making sure tax payments are current, or establishing the payment trail for a new property.
Title service fees cover a grab-bag of necessary processes. For example, research into the title on your new property, filing official info with pertinent local, state or federal governments, and paying the notary public who authorizes your signatures on legal documents.
Home inspection fees are last here, but far from least. You should pay for a professional home inspector to examine your prospective new property with his or her metaphorical fine-toothed combs. The inspector will report back positively, or discover problems such as faulty wiring in electrical outlets, or mold under carpet. Don’t skip this step.
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