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First Time Home Buying Fees Broken Down

Bill Gassett's picture
First Time Buyer Expenses

Expenses You'll Pay as a First Time Buyer

Do you know the most common expenses when buying your first home? Did you know that on top of the home sale price, an average American pays over $10,000 in fees when buying a house?

To many people, buying a home represents a new chapter in their lives. However, this excitement can slowly turn into dismay and due stress if you aren’t prepared to pay all the fees that come with buying a home.

These may come in the form of one-off payments, substantial upfront costs, and recurring homeownership costs. Doing your homework well before committing to buy can give you peace of mind later down the line. That said, here’s a breakdown of all the fees you need to pay when buying a home.

1. The Down Payment

First, there is the down payment to consider. This one will probably be the highest expense you’ll make when buying a home.

Keep in mind that some loans (like VA and USDA loans) don’t require you to pay a down payment when buying a home. However, most lenders require a down payment plus substantial reserves after closing costs are paid.

For example, FHA loans require a down payment of at least 3.5% on a $300,000 purchase. This would equate to a deposit of around $9,000. As for reserves, lenders don’t want you to deplete your savings after buying a house. They want to make sure you’re left with enough money to pay for the mortgage, even if something happens to your income.

It is also possible you could get a down payment gift from a family member as well for most loan programs.

2. Lender-Based Costs

Besides the mortgage costs, there are other fees that need to be paid to the lender.

For example, the lender will charge you origination fees for creating the loan. This fee covers the administrative and other costs associated with the loan. This may include document preparation fee ($50 - $100), underwriting fee, credit report fee, etc.

Before you choose a mortgage provider, always enquire about these fees. Beware of those cunning lenders who use high fees to make their interest rates look more attractive.

3. Agency Fee

If you choose to work with a real estate agent, you will have to pay agency fees.

Hiring an agent may help you fasten the buying process while giving you more buying options, but you’ll have to pay for the services. Most brokerages charge a 5 to 6% commission on the sales price, which is paid by the seller.

However, it’s the buyer who funds the purchase price from which the commission is paid. You’ll still see and pay this fee, although it will be absorbed into the listing price of the home. For more information on agency fees and who pays the real estate commission, check out this post.

4. Appraisal Fee

The appraisal or valuation fee is charged by the mortgage provider to assess the value of the property under consideration.

They do this for security purposes—they want to ensure that should things go wrong and you’re unable to pay, they can sell the property and get a decent amount from the proceeds of the sale. The appraisal fee varies from lender to lender, but you should plan for around three-hundred to five-hundred.

5. Survey Fee

Appraisal fees and survey fees are often used interchangeably. But are the two one and the same? While both fees are closely related, they differ in their scope and purpose.

Appraisal fees are charged by the lender to confirm that the property exists and ascertain its value for security purposes. Surveys, on the other hand, are done for the benefit of the buyer. As the buyer, you may want to hire a surveyor to conduct a thorough inspection of the property to ensure it’s in good condition. You’ll then have to pay a survey fee for the services.

A survey may spot dump, plumbing issues, structural problems, and other snags. Note that if the survey is not done and you discover faults with the property later, the lender’s valuation will offer you no protection.

6. Title Based Fees

When buying property, the title will need to be transferred from the seller to the buyer, and this attracts a variety of charges.

That said, you’ll usually see charges for title fee, recording fee, title settlement fee, and title insurance fee. For example, you may need to pay a title search fee to ensure no one else has a claim to the property title.

You may also need a title insurance policy. In most cases, lenders will require title insurance, which is generally at your expense. This insurance is designed to protect you and the lender from title fraud, zoning violations, and other property issues.

Lastly, depending on where you live, you may need to pay a fee to your local recording office for registration purposes. This is done to ensure the property becomes a matter of public record.

7. Property Taxes

Like any other purchase, you won’t be able to escape the taxman with the purchase of the property. Property taxes vary by state and house/land size. Note that your first property taxes will be paid upfront at closing.

That said, you’ll be liable to pay a land transfer tax. The tax is based on the home’s purchase price, although other factors may also come into play. Property taxes are paid annually and range from 0 – 2.5% of the sales price. However, you may be entitled to a rebate for part of the cost, depending on where you live.

Final Thoughts on First Time Buyer Costs

On average, expect to pay closing costs of 3-10% on the sales price. However, you can bring these costs considerably down by finding the best mortgage broker and negotiating lower prices with the various parties involved in the home buying process. Hopefully, you have found the breakdown of what a first time home buyer pays in fees helpful in your buying journey.

Other Vital Huliq Resources Worth Reading

Read these previous real estate publications found on Huliq loaded with helpful information.

Don't make these mistakes as a new homeowner - see some of the more common mistakes you will want to avoid as a first-time homebuyer. Enjoy the tips on how to be a fiscally responsible homeowner.

When should I move - this is a question, so many homeowners ask themselves. See some of the tell-tale signs that it might be time to move along to your next property.

About the author: The above article on first-time home buyer costs was written by Erika. Erika is a content strategist and producer who believes in the power of networking and quality writing. She’s an avid reader, writer, and runner.

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