Costs of buying a home apart from the purchase price

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Published Date 11/17/2023

You know there has to be more to it. When purchasing a home, It’s not a matter of simply being approved for a loan, signing on the dotted line, and packing your boxes.

Realtor.com’s Craig Donofrio explains how the costs of buying a home go well beyond the actual purchase price. “If you’re a first-time home buyer, you might get a little queasy when the last line of your good-faith estimate comes in at several thousand dollars. And after the color returns to your face, you might also be a little more than perplexed by some of those fees.”

Donofrio goes on to outline these extra costs so that you go into the purchase with eyes wide open, the first of which is your earnest money deposit. That word “earnest” is there for a reason. It’s your purchase commitment — your “skin in the game,” so to speak — and you should expect to plunk down 1% to 2% of the total purchase price for this deposit — usually a check or cashier’s check attached to the offer itself. The amount can change depending on market factors, such as if demand in your area is high. A hot market may mean a bigger check. A cold one? The seller could be happy with less than 1%.

Next is the escrow account. This account is where that check gets dumped into — basically a way for your mortgage company to make sure you have enough money to cover related taxes and mortgage insurance. “The amount you need to pay varies by location, lender, and loan type,” says Donofrio. “It could cover the costs of buying a home for a few months to a year. Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but it’s not required for VA loans.”

Onto the origination fee. This is a hefty one since it’s the price you pay the loan officer or broker for completing the loan. It includes underwriting, originating, and processing the costs of buying a home. “The origination fee is a small percentage of the total loan,” says Donofrio. “A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.”

Other fees include the home inspection (anywhere from $300 to $500), although cost can vary by location, the radon inspection (an EPA-recommended step), and a pest inspection (around $100-$200).

In some states, an attorney must be present at closing. In others it’s optional. If you use a lawyer, expect to cover the costs, which vary by area and lawyer. “It’s typical for mortgage companies to have a lawyer on their end, although they should cover the bill,” says Donfrio.

You’ll also be paying for a credit check. Just because you can get your credit report for free doesn’t mean your lender can. They will be checking all three credit agencies, and it may cost around $30. And don’t forget the cost of extra insurance, especially if you're buying a home in a hazard-prone area.

Lenders won’t lend money without an appraisal. They must know the home’s fair market value. This can cost between $300 to $400, depending on location and property size.

You’ll also be paying to make sure the property’s title is free and clear by getting a title report, required by the lender as well. Your lender will recommend a title company, but you can also shop around for one.

Sound like a lot? Just remember that you have bargaining power. “Try to get a feel for what rates and fees apply in your area,” says Donofrio. “If you aren’t sure what a lender is charging, ask for an explanation—the charge might not be set in stone. If you’re unhappy with a charge, negotiate.”

Realtor, TBWS

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