Many would-be homebuyers do not fully consider all of the costs that originate from the transfer of property. If you are a buyer, you should be ready for all of the little fees and payments that add up over the course of your negotiation for a property. Below is a straightforward layout of the total cost of buying a home based on the average price of a home in the United States.
What is the average price of a home in the United States?
The average price of a home in the US is $210,800, according to Existing Home Sales Report data from the National Association of Realtors. This matters because many of the fees that you are responsible for as a buyer are based on a percentage of the home price.
You can view charts of the average price of a US home here.
What are the fixed upfront fees?
Most of the fixed upfront fees are originated by lenders who are vetting both the buyer and the property. Many of these fees are avoided during an all cash transaction between buyer and seller. However, assuming that you need an underwriter for your loan, the first fixed fee that you should consider is the cost of pulling your credit.
Every lender that you apply to will want to see a separate credit report. They will pass the cost of obtaining these reports on to you. This cost is currently around $30.
Are there any upfront fees that I originate that are not fixed?
You will likely have a real estate agent as your right-hand man during all aspects of your negotiation. This agent requires a the payment as well. In most cases, this fee is deferred until closing and based on a percentage of the selling price of the home; however, it is originated at the start of the negotiation. The size of this fee depends on the culture of the state in which the negotiation takes place; however, you can expect to pay between 2.5 and three percent ($5,270-$6,324) of the total loan cost as a fee to the buyers agent.
What happens after I find a house?
Once you find a house that you want to bid on, you must have your earnest money deposit and down payment ready. In order to show the seller that you are serious about your bid, negotiation culture dictates that you release a good faith deposit, known as earnest money, into the escrow account. This amount varies, but you should expect to pay between one and two percent ($2,108-$4,216) of the total home price as earnest money in order to be taken seriously. Sellers have been known to reject an offer because the earnest money deposit was too low.
You will also need a down payment, or a percentage of the home price deposited as cash into escrow as payment for your seller. Depending on who is underwriting your loan, you may be required to provide between 3.5 and 20 percent ($7,378-$42,160)Â of the home price as a minimum. There are some zero percent down payment loans on the market, but these are meant for low income, bad credit buyers and originate many new fixed fees.
What happens if the seller accepts my offer?
If the seller accepts your offer, then the lender will usually insist on a home inspection and a home appraisal. These two costs are passed on to the buyer and are usually rolled into the cost of closing. They are fixed fees, not contingent on the price of the home. You should budget between $500 and $1,500Â for the home inspection and the home appraisal. Higher value markets such as New York and California may have higher fixed fees.
You will also need to set aside anywhere from one to 1.5 percent ($2,108-$3,162) of the total home price to pay a real estate attorney to look over the paperwork that originates from real estate negotiations. Although this is not a required expense, a reputable attorney will save you much more in future costs then you pay him in current fees. You may also find attorneys who work for fixed fees. In this case, budget about $100 per hour.
What costs will I pay at closing?
The closing table is where the government takes its cut of taxes and fees for recording the transfer of property in public record. The fees are fixed and based on the culture of the state, and the taxes are percentage-based on the current property tax rate. These fees may include title insurance, mortgage origination fees, loan origination fees, hazard insurance premiums, underwriting fees, courier fees, survey fees, intangible tax, and deed recording fees, among many others. In total, a buyer should prepare to have anywhere from five to six percent ($10,540-$12,648) of the total price of the home ready to pay at closing to cover these costs.
Are these the only costs that I will incur when I buy a home?
Buyer should consider that all of the fees and costs mentioned above do not include the living costs that are incurred during the process. For instance, you will need money to cover personal emergencies, furnishing the home once you buy it, and transportation to view properties.
2 Point Highlight
This amount varies, but you should expect to pay between one and two percent of the total home price as earnest money in order to be taken seriously.
You will also need to set aside anywhere from one to 1.5 percent of the total home price to pay a real estate attorney to look over the paperwork that originates from real estate negotiations.
