Out Of Pocket Costs Buying a Home

One thing possesses the power to drown out the excitement ushered in after deciding to buy a home.  While the gobs of paperwork to come is a close second, nothing compares to the fear of the unknown.  Unknown closing costs to be specific.  Like with most unknowns, the unknowing is far scarier than the unknown information.

Costs Associated with Buying a Home

The costs of buying a home are often mislabeled “closing costs”.  “Settlement charges” is a far better title.  Either way, costs of home buying fall in to 1 of 5 categories.

1. Lender Costs | These costs are charged by your mortgage lender and include:
   a. Processing
   b. Underwriting
   c. Doc Preparation
   d. Closing Fee
2. Title Costs | These costs are charged by the Title Company and include:
   a. Administrative fee
   b. Title Insurance
   c. Endorsement
3. Pre-paid taxes and Insurance | These are funds collected at closing to pay for future property taxes and homeowner’s insurance.
4. Appraisal Cost | This fee covers the cost of the appraisal.
5. Other Costs | This category is a catch all for costs not fitting into the other 4 categories and include:
   a. HOA transfer and prorated fees
   b. Home warranty
   c. Pest inspection

Out of Pocket Costs vs. Costs Paid at Closing

Now that you know the types of cost the next question is when are they due?  Most often, borrowers pay 2 cost “up front”.   They pay for:

1. Appraisal (some transaction do not require an appraisal)
2. Home Inspection (if buyer opts to order one)

Borrower’s pay the balance of their Settlement Charges at closing which is another way of saying “at the very end”.  In other words, borrowers bring funds to cover the above costs in at the very end of the process.  In fact, typically borrower’s pay these costs when they sign their final loan documents just before their closing date.

By Jeremy House