Home Buying Fees and Costs You May Not Know
Investing in real estate can be very profitable. But it requires a lot of research about the market, about the home buying and financing process, as well as related costs associated with home buying. This will prevent you from getting sticker shock and getting into an investment venture that turns out to be more than you were prepared to deal with.
Whether you are planning on reselling the house, flipping it and then reselling it, or turning it into a rental property, it is important to know the related costs of this investment, especially if you will be using a hard money loan to finance the purchase.
Aside from the interest charges, these may be the related costs of your purchase:
– Points. These are upfront charges that may be considered a loan or origination fee. Hard money loans, since they have a more relaxed set of requirements for a borrower, will charge higher points. These points are calculated as a percentage of the amount you borrowed, where 1 point is equal to 1 percent. For instance, if you are charged 3 points on a $200,000 loan, then this will come down to $6,000. The points system is a way hard money lenders can simplify the closing costs or the fees they charge borrowers.
– Underwriting or loan processing fee. Depending on the lender, some underwriting fees may be charged for evaluating the loan, especially if the loan structure is particularly complicated. This is usually a flat fee that includes services such as the preparation of loan documents and closing paperwork.
– Appraisal fee. The lender will require a third-party appraisal to determine the current fair market value of the property. Hard money loans are provided on the basis of the loan amount divided by the value of the property. Thus, a good appraisal will help you secure a higher loan amount.
– Homeowner’s insurance. This type of cover will pay in case the house or its contents are damaged by covered hazards. The insurance may also protect against liability, such as when someone who is hurt in the premises sues for damages.
– Title insurance. Even with due diligence, it is wise to get title insurance to protect you in case it turns out that there are problems with the title. Imagine investing a considerable amount on a house only to find out that the seller was not the person named in the title or if the title presented to you had false information. The insurance will cover your payments in the event that there are problems with your legal ownership of the property such as previously undiscovered heirs or liens that were undisclosed.
– Escrow fees. While you negotiate the home purchase with the seller, you may need to place a portion of your payment into escrow. This assures the seller that the initial payment is there once the sale is finalized. There will, of course, be costs related to having the money held in escrow.
– Inspections. This may be required by the lender and will provide a report of whether there is mold or the presence of termites in the house and the extent of the infestation.
– Survey fees. The boundary map may be available at your local office. However, if there is no survey map available, you may be required to pay for the services of a surveyor, who will determine these boundaries.
– Property taxes and local government fees. It will be helpful to check if the previous owner has outstanding property taxes and water or sewer fees. If there are any unpaid taxes and fees, the new owner will be the one to shoulder these.
Always be sure to read your purchase contract, as well as the loan contract. Some of these fees may be charged while some will be waived or covered by the seller.