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Home Buying Costs

Understanding the three basic categories of home buying costs

With so many charges involved in buying a home, how are you supposed to know what they are?

It is the job of a good lender, like the one you work with through Loan One, a division of The Union Bank Company, to give you a Good Faith Estimate (GFE) within three business days of your loan application.

There are three basic categories of settlement costs:

Fees to Get a Mortgage

This includes lender fees and points, as well as a host of other charges involved in obtaining and processing your loan. Points are an upfront charge expressed as a percent of the loan amount (e.g., 1 point is 1% of the loan) to increase the lender’s effective yield on a loan.

Specific lender fees can include:

  • Loan Origination Fee – This is a charge for your lender’s work in evaluating and preparing your mortgage loan.
  • Application Fee – This charge covers the initial costs of processing your loan application and obtaining your credit report.
  • Appraisal Fee – Your lender will need an opinion from an independent appraiser of the market value of the home you wish to purchase. On average, a home appraisal costs between $300 and $450, depending on the type of appraisal required.
  • Survey – This fee goes to a surveying firm who will verify that your lot has not been encroached upon by any structures since the last survey conducted on the property, and ensures that the home and other structures are legally where the seller says they are.
  • Mortgage Insurance – A lender may require this type of insurance for buyers who make a down payment of less than 20 percent of the value of the house. The policy covers the lender’s risk in the event the buyer fails to make the loan payments. Premiums are typically paid annually from an escrow or reserve account, or in a lump sum at closing.
  • Homeowner’s Insurance – Insurance that protects property against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft away from home. Your lender will expect you to have a policy in effect by closing.

Fees to Establish and Transfer Ownership of the Property

Your lending institution is not likely to give you a mortgage on a house unless you can prove that the seller owns the property you want to buy. This is where title search and title insurance fees come into play.

A title agent will verify that the seller is, indeed, the owner of the property and issue a title insurance policy to guard the lender against any errors that could have occurred in the searching process.

The cost of the policy is usually based on the loan amount. There may also be attorney, escrow, courier fees and other charges involved in the settlement process.

Fees to State and Local Governments

These fees include transfer, recordation and property taxes collected by local and state governments. Your taxes are based on the assessed value of the home, which you pay for community services such as schools, public works, and other costs of local government.

Taxes can often be paid as a part of your monthly mortgage payment.