Costs in Buying a House

First time home buyers are often anxious about the cost of buying a home.  Not only are they committing to a monthly payment for what seems the rest of their lives, but they also have to fork over a bunch of money the day they sign the papers.  As if signing all those papers isn't stressful enough, many of the documents are written in some kind of foreign language that is meaningless when read under pressure.

If you're thinking about buying a home in the St. Paul area, here is a list of common fees the buyer pays to buy a house.

1. Down payment:  The down payment is probably the single biggest dollar amount the buyer needs to buy a home.  During the feeding frenzy prior to 2005, it was common for first time home buyers in St. Paul to purchase a home with no down payment.  Now that mortgage qualifications are tightening, the market is returning to requiring a down payment.  The down payment can be as little as 3% of the mortgage if the buyer is getting an FHA mortgage. 
2. Mortgage origination fees:  The second largest item in the list of costs to buy a home.  Origination fees can be as little as 1% of the mortgage amount or as high as 5% or more.  Most mortgages for buyers with good credit are in the 1%-2% in the St. Paul area.
3. Discount points:  An optional fee used to buy down the interest rate on the mortgage.
4. Appraisal:  This fee is often paid before the closing and is given to the appraiser who determines that the home is worth the amount of the mortgage.  The fee is based on the size and value of the home.
5. Credit report:  The credit report is often paid at the time of application for the mortgage.
6. Private mortgage insurance or mortgage insurance premium:  If the down payment is less than 20% of the value of the home, the lender will require the buyer to pay for mortgage insurance to cover the lender's losses if the buyer doesn't pay their mortgage.   A one time fee is paid at the closing and a monthly fee is paid with the loan payment until the home has 20% equity.
7. An escrow account is usually set up at the closing with several month of taxes and homeowner's insurance placed in an account with the lender.
8. The first year's hazard (homeowner's) insurance is paid before the closing.
9. Fees for recording the deed, any affidavits, and the mortgage at the county.
10. Title insurance is required by the lender to cover any mistakes or omissions made in making sure the title to the home was clear.
11. The buyer's inspection is paid at the time it is done which is usually within 5 days of acceptance of the purchase agreement.  Any other inspections (radon, lead, furnace, etc.) done at that time are also paid by the buyer.
12. The buyer's portion of the property taxes if that is how the purchase agreement is written.
13. Set up fees for new utilities.

The amounts for each of these items vary based on the area and the cost of the home.  When a mortgage application is made a good faith estimate of the costs is supposed to be given to the mortgage applicant.  On that good faith estimate actual figures are used based on the amount the buyers can qualify for.  A rough guide used by my clients to figure the total needed is about 3.5-4% of the mortgage amount as the total amount for the closing costs (all costs but the down payment). 

When an offer to purchase is written, it is not unusual to ask the seller to help out with the closing costs.  Especially in today's market, when sellers are giving concessions in order to sell their homes, it is not unusual for sellers to pay a portion of the closing costs.    It's all part of the negotiating done on the buyers' behalf by their real estate agent.

Comments

[Bonnie Erickson]

Carin, I checked your website and see it is from Canada. I'm choosing to leave your comment although it appears to be geared to getting business for you.

What your website describes as private mortgage insurance is not the private mortgage insurance required in Minnesota by lenders. The PMI required at the closing table insures the lenders against default on the part of the person buying the home. It has nothing to do at all with someone dying and the mortgage being paid off as a result. You are referring to an entirely different product. PMI is a requirement in order to buy a house if the buyer does not have a 20% down payment. It is NOT an option.

[Carin]

Good article.

Before committing to the mortgage insurance offered by the lender, I would suggest homebuyers compare prices with term life insurance. Term life is usually cheaper, and also gives the homebuyer the advantage of being able to name the beneficiary. The homebuyer will also have the option to choose a conversion policy; once the term has finished, it automatically converts into whole life insurance and begins to accrue a cash value.

[Blue Ridge Mountains Cabins For Sale]

This is a great post with so many people hearing it's a great time to buy and have never owned a home and wonder what all is involved and how much they will need this offers a great list of what can be expected.