5 Unseen Expenses While Buying Home
While buying a home a lot of things happen, whether you buy it as an investment property or for living in it. However, most of the experienced buyers of home know that the money spent on a property does not end only on its list price. There are a number of other factors including insurance, property taxes and various other costs to close the deal that can increase its cost by thousands of dollars. This increased price of the property can greatly affect your decision to move further for buying a property or not. You will have to bear these expenses and costs regardless of from which bank you have taken loan to finance your deal. So before proceeding further to buy a home you must know what exactly you will have to spend on it. 5 most common expenses one has to bear while buying a home are discussed in brief here under.
Escrow account for tax:
It may be the largest expense one has to bear while buying a home. It amounts to be hundreds of dollars, even if it is technically not the closing cost of this deal. In order to pay your taxes every lender will create an escrow account for you, whenever you buy a home. Your lender will pay your taxes on your behalf instead of sending you the bill of property tax after every three or six months. But for making such payments, every lender will want you to deposit an amount of tax for six months in your personal escrow account. Main purpose of doing so is that they do not have to ask the home owner again and again to give them money, in case of shortage of balance in escrow account. They also keep more than required money in the account to pay, if the taxes are instantly increased in the town. Though it is a sensible move still it increases the cost of the buyer. Thus tax escrow can increase your cost by thousands of dollars, though it may vary in every town. The lenders rarely send back the amount in escrow account if it is surplus in any year. Though the lenders earn interest on the amount in your escrow account but they usually do not transfer it to the homebuyer. So, you are supposed to keep property taxes for several months in your escrow account, regardless of the source of your loan.
Insurance of home owner:
The working of the insurance of homeowner is like that of tax escrow account of the property, until its deal is closed. The lender needs insurance for a full year before you take the ownership of the property. Even after making this payment in advance you will have to make monthly payments regularly. Your monthly statement will include your insurance payments. The amount of insurance can be higher for the investors than residents. Normally it increases with every addition in the property. The homeowners insurance of a property purchased for rental purpose can annually be more than $2,000.
Fees for origination:
During last five years many considerable changes have been experienced by the mortgage industry. The level of transparency of disclosure fee is one of these changes. The buyers have to pay an additional fee on closing the deal since long. In that situation the buyer will either have to leave the deal or pay this additional cost, even if he does not relish any of them. This rule was replaced in 2009 by the rule that allows the loan seeker to know what actually he will have to pay in dollars. Though this origination fee has dropped during last few years but still it is applicable. Every loan offers various options to charge from the borrowers. You can choose from these options to borrow money at your desired interest rates. You can also choose an option to pay the compensation to the lender through bank by taking loan at a bit higher interest rate. It can be sensible to choose any of these options regardless of your purpose of buying the property. You will have to remain ready with your money within 5 days of initiating the application of the loan, regardless of the option you choose.
Payoff taxes:
The payment of outstanding property tax can be additional expenses than tax escrow. The buyer may have to bear a part of pending property tax, if he buys a property in the mid of tax cycle. In most cases the buyer has to bear such pending taxes though some of the sellers pay it up to next tax cycle. Depending upon the amount of property taxes and the type of billing cycle, such payments can increase the cost of buying home by thousands of dollars.
Various other expenses:
The breakdown of all the payments and expenses during a property transaction is available in the settlement statement of HUD-1. One who has ever bought a home must be aware of several sundry expenses during such transactions. You may have to bear the expenses of appraisal and inspection fees up to $1,000, even before the loan is underwritten. While buying a home you also have to ensure that the title of your ownership is clean. Any liability on the property has to be cleared off before finalizing the deal. Though these expenses must be borne by the sellers but if you want the property then you may have to pay them, if the seller has no funds to pay them. Fee for title search, attorney fees, recording fee, title insurance and fees of the lender are some of the other expenses that are not included in the fees of origination. In this way these fees can easily increase your cost by several thousand dollars.
As per law, before submitting the loan for underwriting you will be provided a worksheet regarding chargeable fees. The estimate provided in this sheet can increase your closing cost by few hundred dollars. You can also ask to reduce these fees without any hesitation or fear. The concessions you can get just after asking for them can be surprising for you.