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While the seller of a home can determine the fees they’ll need to pay, such as the real estate agent’s commission by using a seller closing costs calculator, as the buyer, when totaling up all of the cash that you’ll need to get the keys, there is quite a bit to consider. Not only do you need to come up with a down payment, but the closing costs which range from 2% to 5% of the loan amount, including property taxes, mortgage insurance, and other fees.
Budgeting for the closing costs and understanding what they cover will help make for a smoother home-buying process.
Inspection Fee
Lenders typically require a home inspection, especially if you’re getting a loan backed by the government, like an FHA loan that’s insured by the Federal Housing Administration. Before they lend you hundreds of thousands of dollars for a home, any lender will need to ensure that it is liveable and structurally sound. If any issues turn up during the inspection, the seller may be to make the repairs or come to a required type of agreement as to how to get them fixed. You may also be able to negotiate a lower sale price. The fee for a home inspection averages around $300 to $500.
Appraisal Fee
In addition to knowing the home is structurally sound, the bank providing your home loan will also want to know if it is worth as much as the amount you want to borrow. This is to ensure it can recoup the value should you default on the loan. A certified, licensed appraiser will conduct a thorough inspection of the property to assess its worth, which may not be the same as the price it’s listed for. Lenders generally base the amount of money they’re willing to loan on the appraised value, not the listing price. A home appraisal typically ranges between $300 and $400.
If the home you’ve put an offer on is appraised at an amount lower than that price, you may have to renegotiate the sale’s price with the seller, make up the difference by paying cash, or back out of the deal if there is an appraisal contingency.
Loan Charges
There are also many fees that are related to the loan itself, including an application fee which covers the cost for processing the application, including administrative expenses and a credit check. The amount varies by lender. If the seller has an assumable mortgage that you will be taking over, you might also be charged a variable fee which is based on the remaining balance of the loan. Depending on the state the home is in, the transaction may also require a real estate attorney to be at the closing, with the fee varying depending on the number of hours the lawyer will need to work for you.
Additionally, the majority of lenders require that you pay the interest which accrues on the loan between the date of settlement and your first monthly payment due date, with the amount depending on the size of the loan. Finally, the loan origination fee, which may be referred to as a processing fee, underwriting fee, or administrative fee, is charged for evaluating and preparing the loan. It’s usually about 0.5% of the amount that you’re borrowing.
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