And other fees to be aware of as a first-timer saving up for a house
As important as it is to have the funds ready to pay for the downpayment on your home purchase, equally as important are the closing costs.
When purchasing a home, the closing costs — which are funds charged to the buyer and seller to pay the parties involved in funding, approving and insuring the property — can vary anywhere from 3% to as much as 9% of the purchase price. Now why is that? The numbers largely depend on the deal, the location, and the outcome of any negotiations that occur.
Philadelphia for instance is a city that is notorious for its high transfer tax percentages. 4.728% of the sales price or assessed property value is the transfer tax in Philly. This is a combination of a city tax and commonwealth tax, and may be split down the middle by the buyer and the seller. If you were anticipating spending not much more than 3.5% overall with a first time homeowners FHA loan, for example, you may have to think twice about your savings strategy.
Homeowners insurance and taxes are also worth mentioning, and can be confusing at first. When you purchase a home, in the state of PA, at closing you can expect to pay the first few months of home insurance, and property and school taxes upfront. If the property you are purchasing is located in a flood zone, these costs will include flood insurance too
Then there is title insurance and the associated title fees that go towards ensuring that the home is legally fit to be sold to a buyer. When a title company “runs title,” they examine the public records of the home to confirm that the seller is the rightful owner and to check to see what claims are on the property. The title company in many ways is the glue for the whole transaction. They properly allocate the distribution of funds across parties for the transaction, and coordinate the transfer of the deed from the seller to the buyer. A buyer can expect to pay 1.5-3k to cover title fees.
Depending on the loan type, you can receive up to 3-6% in assistance from the seller to help with your closing costs. There are also grants and credits that exist to support buyers, especially first-timers who have never before gone through the process. Other fees you want to be thinking about however are the following: the underwriting fee (1% of the loan), the appraisal ($400-800), the recording fees ($50-200), and the initial loan origination fee (.5-1% of the loan).
A home purchase involves a number of moving parts. However, working with a trusted agent and fair lender can ease the burden of the process and ensure that you get the most bang for your buck. And being aware of the costs that aren’t talked about as much, can help you position yourself prudently as you save money.