These Are Extra Expenses You’ll Pay When Buying a Home
Becoming a homeowner seems to be an event in life that has occurred at a lower and slower rate over the past decade. The expense of purchasing a home has played a huge factor in those numbers. Plus, there are a lot of hidden expenses when buying a home. We don’t want you to be caught by surprise. There are plenty of ways that you can prepare for these costs if you know what they are.
1. Biggest Overall Expense – Tax Escrows
During the mortgage process, your property tax is one of the largest additional costs you’ll face when being a homeowner, but an escrow is an important and helpful way of paying this expense. What is an escrow? A tax escrow or escrow account is a payment plan through your lender that you’ll utilize to pay off your property tax. This timely payment will keep you from falling victim to tax liens or loss of property. A tax escrow will allow you to make a monthly deposit that will be added to your mortgage payment. Then, these funds will be held and paid out on the due dates of your bills.
So, what is the benefit of making these payments to your lender instead of paying these bills yourself? For starters, the semi-annual payment sum of your taxes can be quite a lot of money. Property tax can add thousands of dollars to your home expenses each year depending on the value of your land and the improvements made to your home. To make these costs easier to manage, your lender will add your escrow payment onto your existing mortgage to ensure that money is being placed towards those taxes each month so you don’t fall behind.
2. Homeowner’s Insurance
Having your home insured is a way to protect your house and possessions against theft or damage, and it’s an expense that many individuals and families have in the United States. Not having insurance can result in expenses that are beyond your budget. We here at Ramm do not want to see anyone go through this hardship. If someone does need to be relieved of the financial burden of their home, we do want to help by buying homes from homeowners who have no insurance. Most mortgage companies require their borrowers to have some form of homeowner’s insurance that can be proven before making a loan.
There are different levels of coverage at different price points that you can acquire. Generally, each level offered will supply coverage for interior and exterior damage, loss or theft, and personal liability for harm to others. The rates of each policy are determined by the claim history of a home, the state of the neighborhood, and the condition of your home.
Don’t limit yourself to one company when looking for homeowner’s insurance. Get quotes from a minimum of five different businesses. Most of the time, an insurer you’ve already worked with will offer you a better deal, but sometimes you’ll find better rates elsewhere. We don’t recommend cutting your coverage as a way of saving money. Instead, cut your potential costs by maintaining a home security system, paying off your mortgage, and regularly comparing policies. You can also raise your deductible if you don’t foresee a need for frequent coverage of lower-cost claims.
3. Origination Fees
This fee may be charged by your lender in exchange for administrative costs, paperwork, and other services for your loan. This fee usually ranges from 0.5% to 1% of the loan amount and is a smaller part of your closing costs when entering a loan. You can compare total mortgage fees on a mortgage calculator. While this amount can be negotiable in some cases and lender credits may be offered, you might pay a higher interest rate over the span of the loan if you reduce or avoid an origination fee.
It is likely you won’t have this kind of fee with most direct lenders, such as banks or credit unions. An online lender will often have this extra charge, but there are ways to save on an origination fee. If you have a good credit score and a safe source of income, you may be able to safely negotiate the origination fee. Alternatively, if your preferred vendor’s prices are higher than desired, present evidence of their competitor’s prices to see if you can negotiate without raising interest rates. When a seller wants to sell a home fast, you may be able to convince them to pay all or part of the origination fee if you offer to buy immediately.
Find ways to pay your origination fee that are manageable for you. You can pay everything upfront at the time of closing or add the fee to your mortgage payment. Depending on your financial situation and location, you might have access to a closing cost assistance program that can offer you grants, lower interest on loans, and other help for fees and closing costs.
4. Are There Other Expenses When Buying a Home?
These are three of the main expenses you’ll likely have to plan ahead for when buying a home. However, depending on the home, community, and previous owner you may have other expenses around the time you purchase a home. Take your time doing your research and asking questions when looking at homes.
One thing you should not have to worry about is a hidden expense within your mortgage loan. The law has required a fee worksheet to be presented before your loan is submitted into underwriting. This estimate will be within a few hundred dollars of the total you’ll be given at closing. Ask questions and for a reduction on these fees. You might be surprised to find you can avoid paying some fees by simply asking to not pay them.