Buying a home is a considerable investment for many people.
One of the most important things to do when you are thinking about buying a home is setting a budget.
You should have a realistic expectation of how much things should cost and still allow some wiggle room for any unexpected expenses that may come up.
Some of the things that you should prepare for are:
- down payment
- monthly mortgage payments
- property taxes
- homeowners insurance
- monthly utility bills
- private mortgage insurance (if making a down payment of less than 20 percent)
- homeowner or condo association fees (if applicable)
- realtor commissions
- closing costs
Getting Your Finances
Getting your finances in order is essential for buying a home in Texas.
Sit down with a representative at your bank, credit union or other lending institution before the sale so that you know what to expect.
They can also help you with a wide variety of lending options that can make the process a lot less stressful.
Closing Costs Components
Closing costs are probably the second largest initial expense when it comes to buying a home, right behind the down payment.
There are several components that makeup closing costs.
Survey fees are costs for having a surveyor verify a home’s property lines. Surveys are often required before a loan can be finalized.
Not having the property surveyed can wind up costing you more in terms of time and legal fees if property lines are incorrectly surveyed or if you are brought to court with a property line dispute.
Most survey fees run around a couple hundred dollars or more.
An appraisal of the home is usually done before any sale. A professional appraiser will give a valuation of the home.
Appraisal fees cover the costs of having the appraiser visit the home, list any concerns and issues that need to be fixed and give their approximate market value for the property.
Expect to pay another couple hundred dollars or more for the appraisal, depending on the size of the property. Larger lots and houses can take more time to appraise, and therefore the appraisal cost can be higher.
Credit Report Fee
Some financial organizations may check your credit. This fee is for pulling your credit history and credit score.
The lender will need that information to determine what kind of loan they can offer you.
While there is no specific credit score required to qualify for a loan, most FHA loans and other similar types of loans are easier to qualify for with a credit score of 580 or higher.
Title insurance is an insurance policy that protects home buyers in the event that the seller does not have full title or claim to the property in question.
Most title insurance policies have a one time premium of $1,000. Premiums can vary, ranging anywhere from a few hundred to a few thousand dollars, depending on the house cost, size and situation.
The policy covers any legal coverage and ongoing work to resolve any issues that may exist.
Origination fees are paid to your lender for processing your loan application.
You’re basically compensating them for drafting the loan documents, verifying and processing them.
This covers application, loan processing, and underwriting fees.
These fees are usually around 1/2 of one percent of the total closing costs, although they can vary and can be negotiated depending on the particular circumstances.
Document Preparation Fees
These are fees that are charged to get your loan ready for processing.
These fees are not required, and can often be negotiated or even eliminated if necessary.
Such fees usually run around a hundred dollars or less, on average.
Recording fees are charged by the government for processing new property records.
Every time a home is bought, there is a property recording fee assessed as the transaction is made part of public records.
These fees are usually charged by the county because they keep records of all property sales and purchases made in that particular county.
Discount points are fees paid to reduce the interest rate on your mortgage. It’s also referred to as buying down the rate.
Discount points are charged at one percent of the mortgage rate.
Each mortgage point reduces the interest rate by 1/4 of 1 percent.
Discount points can reduce your monthly mortgage payment, but are entirely optional.
Wire Transfer Fee
If you are wiring funds to secure your home purchase, a wire transfer fee is usually assessed.
Most home purchases will usually require either a cashier’s check or a wire purchase.
Wire transfer fees are usually under a hundred dollars, depending on the amount of money being wired and the financial institution.
These are the most common elements of closing costs. You may also be expected to pay an application, hourly attorney’s fees, a mortgage broker fee, any prepaid insurance or mortgage broker or lender fees.
Total closing costs can run are around $3,500 or more. Your closing costs should be around two to four percent of the total purchase price of the home you are buying.
Some lenders may offer no-cost closing mortgages. Despite the name, the traditional closing costs are still involved.
The difference with this type of mortgage is that the lender fronts most of these closing costs and fees.
They will charge you a higher interest rate, and you may pay slightly larger monthly mortgage payments as a result.
When you apply for your mortgage loan, take some time to sit down with your lender so that you can go over the itemized closing costs.
This can give you a greater understanding of what’s involved and how much you should expect to pay.
It also gives you an opportunity to ask questions about things that you don’t understand, negotiate certain costs and reduce or eliminate optional items.
Closing costs are inevitable for any home sale, but knowing what to expect can take out a lot of the worry and guesswork.
It allows you to focus on moving forward with the goal of home ownership.