Extra Costs When Buying a Home
When you are buying a new home, there are many costs on top of the purchase price that you need to be aware of, because they may factor into your future affordability, and your ability to close the transaction. Some of these expenses are one-time charges, others are monthly or annual fees.
Here is a list of some of these costs:
Property Taxes - paid in arrears (at the end of the year) and prorated as of the date of closing. Your lender will normally collect monthly 1/12 of the estimated annual property tax, place it in your escrow account, and pay the taxes for you at the end of the year. The closing attorney will collect some prepaid taxes at closing to build up a "buffer" in your escrow account. When you buy the home, taxes will automatically be assessed at a 6% assessment rate. If this becomes your primary home, you need to go to the County Assessor's Office and request a Primary Residence Exemption, which will bring the assessment rate to 4%, and save you a bundle in taxes!
Homeowner's Insurance - if you are financing your purchase with a mortgage loan, your lender will require homeowner's insurance (all peril, including wind and hail), and flood insurance if the home is in a designated flood area. As with the property tax, this expense will be collected monthly as part of your loan payment, and the bank will pay for the insurance when it becomes due. Insurance is paid for in advance, so the closing attorney will collect the first year's premium, plus some prepaid amount as a buffer for the escrow account.
Title Insurance: A one-time fee paid at closing. Lender's insurance is mandatory, buyer's insurance is optional, but highly recommended. It protects your equity in the eventuality of a title defect in the future, for as long as you own the home.
Appraisal - the bank will normally order and collect from you a $300-$400 fee to do the appraisal before closing.
Closing Attorney's Fees: Normally between $350 and $450 per transaction, charged at closing.
Survey - if there is no recent survey, it may be necessary/advisable to order a new survey before closing, which may range in cost from $450 to $700. If flood insurance is required, it is best to order the Elevation Certificate that the insurance company will request at the same time!
Mortgage Insurance - banks insure themselves against your default using mortgage insurance (not required only if you are financing less than 80% of the value of the home). FHA loans require the mortgage insurance (MI or PMI) to be prepaid at closing, other loans charge a monthly fee in addition to the principal and interest, taxes and insurance (PITI) payment.
Moving Costs: depend on many factors, including distance, time of the year and size of your household.
HOA Transfer Fee: Some neighborhoods will charge at closing a percentage of the sales price as a one-time fee to build up their working capital or to contribute to a local fund.
HOA Fees: The Homeowner's Association may charge an annual HOA fee (and/or a monthly regime fee in case of a condominium ownership). These fees are normally paid for in advance at the beginning of the year, and will be prorated between Buyer and Seller at closing.
The last thing you need is for surprise financial obligations to crop up hours before you take possession of your new home!