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7 Fees Every Homebuyer Should Factor Into The Total Cost of Purchasing a Home

Often when someone thinks about purchasing a home, they think about having enough money to cover the down payment, keeping their debt-to-income ratio low and having a stable credit score. However, there are several other costs that homebuyers must take into consideration and prepare for that need to be paid for before closing day. 

Couple moved into new home. (Pexels.com)

Origination Fee 

When a homebuyer receives the loan estimate form, it is crucial to review the loan costs section. Here a homebuyer will discover that the lender charges at least one to four percent of the loan amount. That means a house that costs $500,000 will have a loan origination fee of at least $5,000.

This is known as an origination fee. Found in the fine print of the initial mortgage process, it may include expenses such as an application, processing, verification and rate-lock, underwriting and administrative fees. A homebuyer will be expected to pay these fees at closing. 

Down Payment 

One of the most significant expenses associated with purchasing a home is the down payment. For FHA loans, a purchaser will need at least 3.5 percent of the total cost of the loan, while conventional loans will call for three to 20 percent. Therefore, if a homebuyer purchases a home for $300,000 using an FHA loan, the down payment will be a minimum of $10,500. 

Private Mortgage Insurance (PMI) 

If a homebuyer makes less than a 20 percent down payment, the lender will apply a mortgage insurance premium, known as PMI. The purpose of PMI is to protect lenders — not the homebuyer. If the homeowner stops making payments, the PMI will be supporting the needs of the lender. 

In addition to conventional loans that require less than a 20 percent down payment, all FHA and USDA loans require mortgage insurance. PMI is a fee that is included in a loan and monthly payments. Therefore, if PMI is included in a mortgage, the loan payment will be higher. 

To read more about homebuying expenses, click here.

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