If you’re in the process of buying a home, you probably have your deposit and monthly mortgage charges in a spreadsheet, along with a chart of your other expenses and your monthly income. However, throughout the home buying process there are lots of different costs that will come into play – and it’s easy to forget something. When you’re preparing to close on your new home and trying to understand “exactly” how much money your truly going to need, make sure you consider these three closing costs that most buyers forget:
1. Home Inspection Fees: A Small Charge For Peace Of Mind
Most Maryland home purchase agreements are contingent upon a successful home inspection – and if you’re planning to buy a home, you should definitely have it inspected before you buy it. However, home inspectors don’t work for free, and you’ll have to pay a home inspector for a thorough evaluation of the premises. Make sure you ALWAYS do your own research on who you use for your inspections, it’s fine that your agent recommends someone (they should recommend at least 3 different ones, or none at all), but do your own due diligence.
A “standard” home inspection fee will depend on the kind of property you’re buying, and can vary depending on your location. For a condo unit, you’ll only need to pay about $250, but a single-family home might cost up to $500. Luxury properties are often even more expensive. Always remember, if you are buying a home with pool you’ll need to get that inspected, if your property has a well and/or septic system those need to be inspected too. The home has a lovely brick fireplace? That gets it’s own inspection as well.
Depending on the size of the home, how many items need to be inspected, and how many different inspectors need to be involved, the amounts very greatly.
On the low side, your property may only require a “general” home inspection, with none of the earlier mentioned “add-ons”, in that case you could be looking at as low as $300-$400 for all of the inspections necessary to purchase the home (Note: this amount does not include the lender’s appraisal which you also must pay for).
On the high side, if you have that larger home, with the pool, with the fireplace (or multiple fireplaces), a well, a private septic system, maybe even an underground fuel tank, you could be looking as high as $1,500 – $2,000 (or even higher)… so keep the inspections in mind when budgeting.
2. Private Mortgage Insurance: Required With Small Down Payments
If you’re only planning to make the minimum down payment on your home, then you’ll need to buy mortgage insurance (you don’t have a choice). Mortgage insurance protects the lender in the event that you default on your loan. This is an added cost that your lender pays, and in general, almost every lender will pass the cost on to you.
You can pay for your mortgage insurance in one large payment, or you can add it to your monthly mortgage payments. Note that if your down payment is less than 20% of the purchase price, you’re legally required to buy mortgage insurance.
So make sure your lender goes over all of your options when it comes to Mortgage Insurance. Many home purchasers kick themselves later when they figure out that because they weren’t informed when they bought their home of all of their options, they set themselves up to waste thousands of dollars in insurance payments throughout the course of the mortgage.
Many home buyers are forced to refinance later just to shed the Mortgage Insurance premium, and that costs even addition money out of pocket (could be thousands). Some people believe that after they think they have 20% paid equity into the property after a few years of paying the payments… and the mortgage insurance simply “goes away”. Even though that in many cases this is what should happen, it’s not that simple or cut and dry. So do your homework on the loan product you choose and how the mortgage insurance will work within it.
3. Lender Fees: All Sorts Of Charges On Top Of Your Mortgage
One large, “catch-all” category of closing costs that Maryland home buyers often forget is lender fees. Lender fees are fees that your mortgage lender will charge you in order to recoup their costs, and in some cases assist in turning a profit. These include appraisal fees, credit report fees, processing and application fees, and administration fees for underwriting.
These fees can range depending on the lender, but in many cases they exceed $3,000. You’ll want to budget about $3,500 to $5,000 to be safe.