Are you considering buying a Kansas City home? Congratulations! It’s an exciting journey, but before you start picturing yourself in your dream home, it’s essential to understand the various costs associated with the home-buying process. While down payments and mortgage fees are the most significant expenses, there are several additional costs that you need to factor into your budget. In this blog post, we’ll break down these costs to help you make informed decisions.
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1. Closing Costs:
Closing costs are an integral part of the home-buying process. These costs typically range from 3% to 6% of the total home value. Unlike your down payment, closing costs are out-of-pocket expenses that you’ll need to pay upfront rather than rolling them into your loan.
2. Appraisal Fee:
Mortgage lenders often require a home appraisal to determine the property’s value and assess the associated lending risk. The appraisal fee, typically paid to a third-party appraisal company, can range from $600 to $2,000, depending on various factors such as the property’s size, location, and complexity.
3. Credit Report Fee:
Mortgage lenders use your credit score and history to evaluate your loan eligibility and terms. Some lenders may charge a small fee (usually around $20 to $30) for running a credit score report.
4. Home Inspection Fee:
A home inspection is a critical step in the home-buying process. It ensures that you’re making a sound investment by assessing the property’s condition, identifying necessary repairs, and checking for potential issues like pests, lead-based paint, or flood damage.
5. Title Search:
A title search is conducted to verify property records, ensuring there are no liens or discrepancies associated with the property’s title. Typically, this service costs around $75 to $200, depending on the property’s location.
6. Origination Fee:
Mortgage origination fees cover the costs associated with processing your loan, including documentation and underwriting. These fees typically amount to 0.5% to 1% of the loan amount.
7. Earnest Money:
Earnest money serves as a commitment to the home sale. Buyers deposit this money into an escrow account, which is released and applied to the down payment or closing costs once all transaction conditions are met. Typically, earnest money deposits range from 1% to 2% of the sale price.
8. HOA Fees:
Homeowners’ associations (HOAs) charge monthly fees for maintaining services, social activities, and amenities in condos, apartments, and certain neighborhoods. These fees can range from $0 to $500+ per month, with additional fees that may apply at closing.
9. Private Mortgage Insurance (PMI):
If you can’t make a 20% down payment, you’ll likely be required to pay PMI. PMI protects the lender if you default on the loan and can cost up to 2% of the loan annually. It typically remains in effect until you’ve paid down at least 20% of the home’s value.
10. Homeowners Insurance:
Homeowners insurance is crucial to protect your investment and cover damages to your home or assets. The cost varies based on factors like the property’s age, type, location, and additional risks such as a swimming pool or wood-burning stove. On average, homeowners insurance costs around $1,585 per year but can vary by state.
11. Property Taxes:
State and county property taxes fund local services like schools, parks, and public safety. Tax rates vary by area, and they may increase over time due to various factors. To estimate your property taxes, you’ll need your property’s assessed value and your municipality’s millage rate.
Here’s a quick calculation example:
- Assessed value: $250,000
- Mill rate: 6 (6/1,000 = $0.006)
- Estimated property taxes: $250,000 x $0.006 = $1,500
12. Mortgage Costs and Fees:
When budgeting for your new home, don’t overlook the expenses associated with the mortgage itself. That’s right, it costs money to borrow money. As a homebuyer, you’ll be responsible for the mortgage itself, as well as any administrative fees that come with the work behind securing a loan.
13. Down Payment:
The biggest mortgage cost you’ll pay upfront usually is your down payment. While certain loans don’t require a down payment, most loan types require at least 3% of the purchase price. Paying at least a 20% down payment allows you to cut another cost: private mortgage insurance (PMI).
14. Underwriting, Application, and Other Lending-Related Fees:
Lenders also need to receive payment for the expertise, use of capital, and paperwork they do as part of the lending process. They may charge an application fee, origination fee, and a credit report fee, among other possible fees. Typically, the origination fee is the main mortgage lender fee and is usually 0.5 to 1% of the mortgage amount.
15. Appraisals and Surveys of Property:
Lender-related fees can include services such as an appraisal or property survey. While the information from these services may be available to you, the main reason to hire individuals is to do these jobs to help the lender get independent verification that everyone understands the value of the property and its boundaries.
Plan on these services, which can cost $300-$500, as part of the cost of borrowing money, since lenders want full verification of what the collateral for the loan—your property—is worth, and that there isn’t a disputed claim on it.
16. Closing the Deal:
The process of closing a home purchase deal requires a lot of legal paperwork, as you’ll see when you and the seller sit down to sign everything and make it official.
The final list of fees for closing costs may include things such as an escrow fee, which is charged for holding payments toward your taxes or insurance and disbursing them to the right recipient on the right due dates. There may be a separate “closing fee” that pays the closing agent for their time and work to get all necessary documents ready for the closing process.
Closing costs can add up, so be aware of your income, first-time buyer status, or other factors that might qualify you for closing costs assistance. Your state’s housing finance agency could be a good place to start looking for these programs.
17. Title-Related Fees:
A separate collection of fees that typically are charged at closing include title services, which can add up to $2,000 on average, as it covers a number of items:
- Title search: This determines whether anyone else has a financial claim on the property, such as a lien or an easement. This search, which can cost $75-$100, helps verify that the property can be sold.
- Title settlement: This fee, which varies, covers the administrative costs associated with the closing, such as escrow, survey, and notary services.
- Title insurance: Most lenders require you purchase this policy to protect the amount they lend. The cost can either be based on a percentage of the sale price or about $1,000 if the agency you choose uses a flat rate. You also have the option to purchase an owner’s title insurance policy to protect your financial investment in the home; however, this is not required.
- Recording fee: In most states, reporting that a property has changed hands results in a recording fee of around $125 on average. This covers the costs associated with filing deeds and other documentation with your county’s public records.
Lenders may have recommendations for where to purchase title services, but you can shop around for quotes, potentially generating savings.
18. Ongoing Costs, Fees, and Taxes:
While closing will often include the first months or even years of certain ongoing costs, you will likely be responsible for additional ongoing bills once you are a homeowner. Local property taxes will be your responsibility, as will premiums on a homeowners insurance policy.
If your property is part of a homeowners association, you’ll need to pay dues, which can range from only a few dollars to hundreds of dollars per month, depending on what amenities are part of the HOA.
Lenders can often adjust your monthly payment to include estimated tax and insurance costs, with a slight adjustment at some point down the road if your tax or insurance costs are assessed higher or lower than expected. Doing this yields fewer bills for you to handle and can be worth it if you want to simplify your bill-paying experience.
19. Other Fees Homebuyers May Encounter:
- Home inspections are usually optional but are highly recommended. A general home inspection, which typically costs $300-$500, can reveal information about the state of the home or property that helps you decide whether the deal is right for you since it brings an expert’s understanding of the home’s level of maintenance and functionality. (Additional charges may arise should you need a specialized inspection, such as for pests or radon.)
Individual lenders and some states and municipalities may have additional fees or fees that would otherwise be rolled into the above fee structures. Never hesitate to ask about an unfamiliar line item in your loan estimate or closing disclosure, and do your own research to ensure you know what you’re paying.
20. The Bottom Line:
Buying a home can be a lucrative choice long term, since homes often retain their value over time, and even appreciate in value in many locations. However, upfront costs, ongoing payments, and maintenance expenses should be part of your budget so that you don’t choose a house that is too expensive to afford.
Factor in the estimated costs of these fees and expenses at the beginning so you can set a purchase-price budget that accurately reflects what you want—and can—spend.
The Small Real Estate Team: A Commitment to Excellence
At The Small Real Estate Team, we follow a simple yet powerful approach: we value people. We understand that real estate transactions are not just about properties; they’re about people and their dreams. That’s why we treat every transaction as if it were our own personal purchase, ensuring that your interests and goals are at the forefront of every decision we make. Our core values include:
Honesty: We believe in transparency and integrity throughout the real estate process. You can trust us to provide you with honest advice and information to make informed decisions.
Dependability: Count on us to be there for you every step of the way. We’re committed to being reliable and responsive to your needs, ensuring a smooth and stress-free experience.
Loyalty: Your satisfaction is our top priority. We are loyal to your goals and dedicated to helping you achieve them. We’re not just your real estate agents; we’re your partners.
Dedication To The Small Things: We understand that the little details matter. Our dedication to the small things sets us apart and ensures that every aspect of your real estate journey is handled with care and precision.
Buying a home is a significant investment, and understanding the costs involved is crucial to making the right decisions. At The Small Real Estate Team, we’re here to guide you through the process, answer your questions, and help you find your perfect Kansas City home. If you’re ready to embark on your home-buying journey or have any inquiries, don’t hesitate to reach out to us. We look forward to assisting you in achieving your homeownership goals.
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Kendra says: “The Small team helped us prepare to sell our home while also paying attention to the market to help us know exactly when to list our home and how much to list it for. They were efficient but took their time to thoroughly explain every question we had. I know that we wouldn’t have had nearly the amount of offers or sold our house for the price we did if it were not for their guidance and incredible marketing expertise of the Small Team.”
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