What does buying a house cost, above and beyond the monthly mortgage payment you will be taking on?
First-time house-hunters know that there is a dreaded broker fee and so-called closing costs. Add to that the fee for inspections and legal work. Do you know how much to set aside to cover these costs?
Here is the general tally. I hate to price-fix in other people’s businesses, so I have kept the figures pretty broad.
- Brokerage fees: buyers rarely pay brokerage fees. The commissions paid to agents come out of the purchase price.
- Closing costs: There are three costs you need to cover at closing.
- Your total deposit on the house. Most buyers put 5 percent down with their Purchase and Sales Agreement. If you are putting a total of 10 or 20 percent down at closing, that will be in the check or wire transfer you must have ready for closing day.
- You will pre-pay taxes and insurance to begin your escrow accounts; your lender will pay your insurance and taxes for you out of those funds. Most lenders will want three months taxes – figure that out from the listing sheet for a quick estimate. (For insurance, most lenders want you to buy a year of homeowner’s insurance before closing, then put three months into escrow for next year. Figure $1500 a year for insurance.)
- Fees to your lender. Most borrowers pay for application fees, surveys, appraisal, lender’s attorney, title search, and other administrative fees. Expect at least $2000-4000, sometimes more. The good thing about the current lending laws is that you will get an accurate list of your closing costs when you apply for your mortgage. Read your Good Faith Estimate carefully.
- You should get a home inspection on any property you plan to buy. Home inspections cost between $400-1500, depending on the size of the property and the testing you may want to have done.
- You pay for the attorney that closes your mortgage for the lender. This fee is in those closing costs above. You may also need to hire an attorney to review your Purchase and Sales Agreement and to review your Condominium Documents. I have seen buyers pay as much as $1500 for this additional work, if it gets complicated. Many pay under $500 in addition to the closing attorney fees.
- There will be repairs and improvements you are going to want to do when you move in. Save $5-10,000 for that, since most of the houses around here are old and will need something.
- Then there will be moving costs, which vary depending on how much stuff you have. Put aside at least $2000 for this.
That’s the reason I am so adamant about starter houses being a bad idea. Buying involves spending thousands of dollars in services and fees.
Then, when you go to sell that starter house, you pay those fees again on your next house, plus, all these costs for selling your first place:
- That broker commission kicks in when you are on the seller’s side. It comes off the sale price of your house. Although there is no set commission fee, these fees are often into the 5-digits.
- Sellers pay transfer taxes, capital gains taxes, Registry fees, cost of getting CO/smoke detector certification, costs of clean-up, and staging and repairing or otherwise preparing your place for sale.
- Then there’s moving costs. If you are moving once, then one moving cost. If you are moving twice, then two. Plus storage of some stuff. Plus security deposits if you rent in between.
- Also, don’t minimize the cost of your time, effort, and inconvenience during the for-sale period and during the move(s).
In most cases, a homeowner will spend about 10 percent of the purchase price of their house on the cost of fees, services, moving activities, and resale. That is a lot of money to spend if you are not staying in your house for at least 7-10 years.