Beyond the Down Payment: What You Need to Know Now About Closing Costs

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When you buy a home, there are obvious costs that go along with the purchase—the down payment and subsequent mortgage payments. Maybe you’ve saved up to be able to cover these costs, but is the bare minimum actually enough? When it comes time to finalize the deal, there are several other little fees to pay upfront once the home sale is closed. Unfortunately, many new first-time homebuyers don’t know about these extra fees and can suddenly feel overwhelmed when it comes time to start cutting checks. When it comes time to sign on the dotted line, here is a quick breakdown of what you need to remember to save for in order to prevent unpleasant surprises:

Appraisal – This is done before getting approved for a mortgage to evaluate your application and to make sure the mortgage you have requested is congruent with the value of the home you plan on buying. For Rent to Own buyers, your appraisal is especially important as part of the agreement, as it not only establishes the final sale price but also mortgage expectations.

Survey Fee – Inspectors are called in to check that your property lines are correct and that there are no irregularities with neighboring properties. This is especially important for buyers in rural areas, where properties can have atypical lot sizes and shapes when compared to structured, urban or suburban areas.

Title Search Fee – A title company does a background search of sorts on you by searching your past real estate holdings, property deeds, and other information to make sure that you will be legally allowed to purchase and own the home you are eyeing.

Closing Fee – The closing of your home’s purchase is required by law to be overseen by a title company or attorney to ensure a smooth and legitimate process.

Lender’s Policy/Owner’s Policy – This is a dual policy fee that provides title insurance for both the soon-to-be homeowner and the mortgage lender. The lender’s policy is to insure that the new homeowner in fact owns the home and that his/her mortgage is a valid lien. The owner’s policy acts as insurance just in case another party disputes the legitimacy of the new home ownership.

Homeowner’s Insurance – A new homeowner must typically pay for the first year’s round of homeowner’s insurance as part of the closing costs. Many mortgage companies, including FHA affiliates, will require mortgage insurance as well.

General Expenses – These are small expenses that go along with the actual moving process that can build up over time if you are not watching your spending. General expenditures typically include things like renting a moving truck, hiring movers, boxes for moving, shipping things to your new home, last minute cleaning of your old place if you rented or owned it, etc.

Saving for all of these other third-party fees is just as important as saving for your down payment because the process cannot move forward without the services being performed. Whether you are renting, refinancing, or just looking to swap homes, saving even before you start looking for a loan is paramount to your success.