Don't Let These Costs Derail Your Closing!
Warning: Don’t Let These Extra Costs Derail Your Closing
You’ve finally found your dream home. You’ve gotten a great price. You’ve done all the inspections. You worked out a deal with the mortgage company. You’re confident that you know what you’re getting yourself into. You’re all ready for closing.. . . Or aren’t you?
Too many homebuyers forget to budget for all of the extra costs that they’re responsible for. Some turn up on the closing statement. Others you’ll have to pay every month. Not preparing yourself for these costs could derail your home purchase.
To prepare you, the experts at MyPhoenixMLS.com want you to know the most common extra costs that can pop up at the closing table. Plan for them. Put them into your budget. And then rest easy knowing that you’ve got everything covered.
Extra Cost #1: Loan Origination and Processing Fees
Mortgage lenders make money from the monthly interest you pay them, but they also want to get paid for the work of arranging your loan. Some charge loan origination and processing fees, which often run into the thousands of dollars.
Did you ask about this when you received your “Good Faith Estimate” from your lender?
(Tip: When you’re shopping around for a loan, ask lenders about their loan origination and processing fees, as well as the interest rate and monthly payment, to truly compare the cost of different loans.)
How much could it cost you? Typically 1-2% of the loan amount.
Extra Cost #2: Appraisal Fee
Your mortgage lender wants to be sure that the house you’re buying is worth enough to cover the loan you’re taking out (so that if you default on the loan, the mortgage lender can sell the house for enough money to cover the loan). To find out how much the house is worth, the lender will order an appraisal, from an appraisal company that specializes in valuating homes.
The appraiser will take many of the same steps that a good real estate agent will to determine the fair market value of the home, including visiting the home to see its unique features and looking at sales prices of similar homes in the neighborhood that have sold in the last six months.
Did your lender discuss how this fee should be paid?
How much will it cost you? Usually about $300.
Extra Cost #3: Private Mortgage Insurance
If the loan you need is more than 80% of the home’s value (because you can’t make a down payment, for example) then most lenders will require you to pay a monthly fee called Private Mortgage Insurance (PMI). PMI is typically added on to your monthly mortgage payment and paid directly to your lender.
Did you ask your lender if you must pay this fee?
How much will it cost you? Typically 0.75-1% of the loan balance each year.
Extra Cost #4: Property Taxes
The money you pay to the local government in the form of property taxes covers benefits like schools, roads, and police and fire service. Most likely, you will be required to pay your property taxes each month directly to your lender, who then holds it until the property tax comes due which is twice a year in Maricopa County.
Did your Realtor® or lender discuss this with you?
How much will it cost you? Property tax rates vary and could be up as much as $200 a month.
(Tip: Even where your lender is supposed to pay your property tax bill, if the bill doesn’t get paid, you’ll be held liable for interest and late penalties. )
Extra Cost #5: Homeowners (Hazard) Insurance
Your mortgage lender will require you to maintain homeowners insurance (also called hazard insurance). Many lenders require that you pay the homeowners insurance fee directly to them each month and they hold it in escrow until it’s due (once a year). Remember to shop around for the best homeowners insurance rate and make sure to ask which hazards are covered and which aren’t (most homeowners insurance doesn’t cover flooding, for example).
Did your lender discuss this with you?
How much will it cost you? It depends on the value of your home, its age, where it’s located, and a number of other factors that affect either the chances that your home will be damaged or the expense of fixing it if damage does occur.
Extra Cost #6: Utility Hook-ups
When you move into a new home, you’ll want to set up the utilities – phone, cable, Internet, electricity, gas, water, sewer, and trash pickup. But you’ll often be asked to pay an initial set-up fee (on top of your regular monthly payment). Depending on your credit score, you may also be asked to pay a deposit, which you’ll get back if you pay your monthly bills on time.
When planning your new home move-in budget, call the utility companies and ask about these fees so that you can add them into your budget (once all is said and done, you could have to shell out $1,000 or more for utilities set-up and deposit fees).
How much will it cost you? It depends on what utility services you want, and on whether your credit score is high enough to avoid paying upfront deposits. Set-up fees usually run about $100 as long as you don’t have any complicated needs (such as setting up cable in 5 rooms).
Extra Cost #7: Moving Costs
Once you’ve bought a new home, you’ll probably be anxious to move in to it. But what about all of that stuff? Some people choose to go it alone, inviting friends with trucks and strong backs to help move furniture and boxes from the old home to the new one.
Other people would prefer to leave the heavy lifting to the professionals. You can hire a moving company that will supply a truck and movers to move furniture and boxes. Many companies will even pack your things for you.
Whichever route you choose, you will have expenses. If you go it alone, you’ll still have to buy boxes, tape, Styrofoam peanuts, and food and drinks for your helpers. Plus, you may want to rent a dolly for your large furniture as well as blankets, pads, and carpet protectors to protect your new home and your furniture.
How much will it cost you? If you go it alone, plan to pay $250-500 for necessary supplies. Add $50 a day or so if you rent a moving van. If you hire professional movers, expect to pay about $50-100 an hour for a van and two or three movers.
Extra Cost #8: Homeowners Association or Maintenance Fees
If you’re moving into a neighborhood with a homeowners association (HOA) or a condo, you’ll be expected to pay monthly maintenance fees.
Did you review the information the association is supposed to release to you while you are in escrow?
How much will it cost you? It depends on the kind of neighborhood or condo building that you live in. If you live in a nice neighborhood with a lot of amenities (swimming pool, tennis courts, fitness center), expect to pay at least $50 per month in HOA fees. In condo buildings, maintenance fees can easily run into the hundreds of dollars. Before you agree to buy, make sure you know how much these fees will be.
Having an experienced real estate agent by your side to review these extra cost details – and others – can be immensely helpful in your home buying process (and save you thousands). The team of experts at MyPhoenixMLS.com are ready to help. Call them today with any question or concern at 866-249-1678 or 602-318-1114 or email us at info@myphoenixmls.com.
