How to Avoid Sticker Shock at the Closing Table WhenBuying a House

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Recently, I sold a home for some great clients in Fountain, CO and experienced an awkward moment atthe closing table. The buyer of the home had not received the HUD statement from his agent, andtherefore had not had a chance to review the HUD before closing. The HUD-1 statement is the documentthat breaks down the exchange of monies involved in the real estate transaction.

This particular HUD had been issued 3 days before closing, but apparently this buyer never received it. Itwasn't until we were all together at the closing table that he was able to see it for the first time. To makematters worse, he had not been informed about the extra fees associated with his home purchase.

This buyer was under the impression that the sales price of the property was the only real expense that heneeded to worry about. I'm not sure whether he was just a difficult client who didn’t listen to his Realtorand/or mortgage lender, or if he really was not given this information. All I know is that it made for anawkward moment at the closing table. Our buyer had his cashiers check to cover the funds needed topurchase the home, but he thought that all that money went directly towards the principle balance of hishome purchase.

As the title company’s closer went through each line of the HUD statement, he was shocked by the extrareal estate fees involved in his transaction. His Realtor was out of town and couldn’t make it to the closing,so he was stuck there with this bad news. I felt very bad for him, but could not help him, as my interests inthe transaction are specifically for my seller in this case. I always make sure my buyers are prepared forthese fees before closing, but after this experience I decided that my next blog post should be about theextra fees homebuyers can incur when purchasing their home.

When you are looking at homes online, the sales price of the home listed for sale is not the only costassociated with buying the home. There are many other fees that are associated with buying a house andowning real estate in general. This article will help you breakdown these fees and get a betterunderstanding of the additional costs of buying a house.

I have broken the fees down into 4 separate sections: Purchasing Fees, Mortgage Fees, Title CompanyFees, and Home Ownership Fees. I’ve tried to make it easy so you can browse through and read aboutthe extra fees that you may not be familiar with. Let’s start by taking a look at the main fees associated withpurchasing a house.

THE 5 MOST COMMON FEES ASSOCIATED WITH PURCHASING A HOUSE

Make sure that you are familiar with these fees and have budgeted for these home buyer costs.

Downpayment - This is the most common fee that homebuyers are familiar with. Typicallydownpayment expenses run around 3.5% to 5% of the sales price, but there are options for 0%downpayment loans. Some homebuyers believe the myth that you need 20% down to purchase ahome. The truth is that there are programs that make it possible to buy a home with nodownpayment, if you and the property both meet the loan requirements. The best way to find outhome much money you will need for your down payment is to talk to a mortgage lender. You can fillout the form on our loan pre-approval page for Colorado Springs to get this process started if youare at that point now.

Earnest Money - Earnest money is not necessarily a fee, but it is something to be aware ofbecause you will need the funds ready when you put in a contract on a house. Earnest money isbasically a buyer’s proof that they “earnestly” want to purchase the home. A purchase contract is agreat start, but there needs to be some cash involved to protect the sellers interests while they taketheir house off of the market. In Colorado Springs, earnest money is usually around 1% of thepurchase price of a home. A home priced at $250,000 would typically ask $2,500 for earnestmoney. This $2,500 is credited back to the buyer at closing.

Closing Costs - This is usually the second largest out-of-pocket expense for a home buyer. I willbreak down these closing cost in more detail below, but I wanted to add it to this sectionbecause it should never be overlooked. Most of the fees involved in closing costs are associated

with the preparation of your mortgage.

Moving Expenses - This is an expense that seems to be rising every year. The cost of moving isdictated by the amount of items and the distance that you need to move. It’s not uncommon forhomebuyers moving across the country to spend well over $10,000 in moving expenses. First-timehome buyers typically don't have as many possessions and can usually move with much lessexpense.

Home Inspection - The home inspection is technically an optional fee, but I would neverrecommend skipping this very important home buying step. In most states, our real estate contractsoffer an inspection period for the homebuyer to have the property inspected by a professional. Thereal estate inspector will determine whether there are any problems that need to be addressedbefore moving forward with the home purchase. In Colorado Springs, this fee is usually around$300-$500, depending on the size of the home. There are also specific inspectors who specialize incertain parts of the home. You may also need to hire an additional inspector who specializes in oneof the following industries below, based on the home you are buying:

HVAC

Radon

Termite

Mold

Well Water

Septic

Foundation

Structural

MORTGAGE LOAN FEES

These fees are incurred whenusing a mortgage to purchasereal estate. They are notapplicable for cash deals.Mortgage fees are usually thesecond highest monetarycharge to a homebuyer,following the downpayment.These fees can vary from 1%to 5% + of the sales price,depending on your loan typeand structure of the mortgage.

Loan Origination Fee -This is the largest fee onthe mortgage side. It isthe fee that you arepaying the lender togenerate or “originate”your mortgage. It isessentially the cost thatyou pay the lenderyou've hired to prepareyour mortgage forclosing.

Discount Points - This isan optional fee thatborrowers may becharged as a way to paydown the interest rate ona loan. There are manydifferent ways to structurea loan using discount points, so be sure to ask your mortgage lender to explain all your options ifyou plan on buying down your interest rate.

Application Fee - Some mortgage companies charge a fee to process your loan application, for thetime they have invested in order to process it. Loan officers will process hundreds of applications,and many of them may not be ready for a loan yet. This is especially true when lendingrequirements are more strict.

Credit Reporting Fee - Some mortgage companies will charge a fee for credit reporting when theycheck your credit. In many cases, this fee is from a 3rd party service that is simply passed on to thehomebuyer.

Property Appraisal - In order to ensure that the mortgage company is lending money on a propertythat is actually worth the price that you have agreed to in the contract, they will order a propertyappraisal. A professional appraiser will analyze the property to determine its fair market value. If theappraisal comes back reflecting a market value below the sales price of the sales contract, thebuyer and seller will have to negotiate a fix for the problem or the deal will the contract falling apart.This appraisal fee is usually passed on to the buyer, since it is a requirement of the loan.

Private Mortgage Insurance - Private mortgage insurance (PMI) is a fee that mortgage companies

will charge to protect their interests in cases where they are loaning money for a large portion of thehome’s value. In many cases, the PMI will be dropped once a homebuyer’s loan amount becomesless that 80% of the homes fair market value. PMI is usually charged monthly and is an importantmortgage fee to research before entering into a loan.

Property Survey - Your mortgage lender is going to require a survey of the property that you arepurchasing. They do this as a way of verifying the physical specifics of the property and all the realestate specific items on the land before lending money on the property. Many properties will have anexisting survey, and in most cases the lender will accept the previous survey if there have not beenany changes to the property. If there is not an existing survey, the lender will require one and thisexpense is usually passed on to the buyer, unless otherwise specified in the sales contract.

TITLE COMPANY FEES

Title company fees will vary by each state and wether they are paid by the buyer or seller is negotiated inthe sales contract. If you are paying cash for a property, many of these fees are not applicable. In theColorado Springs area, it is common for the seller to pay most of the title fees. We’ll cover all the title feesbelow as a reference; many local Title Companies websites offer specific estimates.

Title Insurance Fees - The title company will issue a Policy insuring the property against defectsas to Title, as outlined in their commitment. Their fees are for all the administrative and documentexpenses required to obtain the items necessary before they can issue a Policy.

Title Search - The first thing that a title company does once they receive a new sales contract is to

perform a title search. This is a process of searching all previous records of the existing title historyfor the property.

Recording Fees - The title company will record the deed and any other relevant documents withthe county recorders office. This fee will usually be passed on to you at closing.

Owner’s Title Policy - The cost of the Owners Title Insurance Policy is a percentage of the salesprice, and can be paid for by the buyer or seller, as indicated in the Sales Contract.

Mortgagee Title Policy - The Title Insurance Policy for the buyers mortgage company is alsocalculated by a percentage of the sales price.

Flood Certificate - This is required in areas where heavy flooding can occur. The fee will varybased on the state.

Escrow Fee - This is the fee that the Title Company charges for their services in processing yourfile.

Tax Certificates - The Title Company will order tax certificates from the appropriate office to showthe payment history and what taxes are owed. The Buyer will pay for the taxes from the date ofclosing through the end of the year, and they may be included in your mortgage payment.

Document Fees - There are several documents that will need to be prepared for your transaction,these will vary according to your situation but can include the Deed, Deed of Trust, Notice toPurchaser, various Affidavits, and others.

Recording Fees - Some of the documents generated, such as the Deed, will need to be recorded atthe County Clerks office, these fees are passed on to the buyer and seller.

COMMON HOME OWNERSHIP EXPENSES

These are the fees involved withowning a home. These expenses canbe a surprise to first time homeowners if they have previously beenrenting. Make sure that you are awareof these expense when purchasing ahome.

Home Owner's Insurance - Thisexpense is required by yourmortgage company because itprotects their asset (your home).Home Owners insurance will varybased on the policy that youchoose, but expect it to be atleast $1,000+ per year, based onthe value of your home. It iscommonly escrowed into themonthly mortgage payment.

Property Taxes - This expensecan vary greatly based on thestate, municipalities, andneighborhood of the home thatyou purchase. Newneighborhoods typically havehigher taxes. Some states haveproperty tax rates as high as 6%of the homes value.

Home Owner’s AssociationDues - This expense is onlyrelevant to properties inneighborhoods with a homeowners association. The fee ispaid by the residents of theneighborhood to pay for all neighborhood maintenance and operating fees. This expense will varygreatly, based on the amenities of the subdivision or community that you purchase in. Town homesand condos can have much higher fees, because they typically take care of all the exteriormaintenance and lawn care.

Property Maintenance & Repairs - When you rent real estate, most of the repairs are covered byyour landlord or property management company. When you own real estate, you are responsible forrepair costs, so make sure that you have some money set aside to handle these issues when theyarrive.

Home Warranties - You can purchase a home warranty as a way to safe guard yourself from repairexpenses in the future. Home warranties are extra protection on top of your home owner’sinsurance that usually cover smaller items not covered in you home owner’s insurance policy.

Appliances and Fixtures - The most common items that need replacing in a home are appliancesand fixtures. Refrigerators, washer/dryers, overs, microwaves, ceiling fans, and lighting fixtures areall usually replaced at some point in time. Knowing the value of these items can be very helpful

when considering purchasing a home.

Property Updates - If most of the homes for sale in your neighborhood have granite countertops,marble backslashes, and custom decks, then you will want to have these items in your home whenyou are ready to sell, in order to insure that you get top dollar for your home. There is an endless listof potential property updates. Do your research and make sure to only update the items that willguarantee a return later when you sell. Don’t overdo it!

Lawn Services - Lawn equipment, landscaping materials, and lawn maintenance can vary greatlybased on the property that you purchase. I recommend researching these expenses beforepurchasing a home to know what you are getting into.

Basic Utilities - Water, gas, and electricity costs can vary from place to place. It is wise to ask for anestimate of utility costs from the owner before purchasing a home it you are concerned about theseexpenses. Water fees can vary dramatically in Colorado, so make sure that you look into this feebefore purchasing a home.

With the information above, you should be able to estimate your extra home buying fees and be preparedahead of time. These fees will vary from state to state, so make sure to ask your local real estateprofessional about them.

If you have any questions, or need any real estate assistance in the Colorado Springs area, please do nothesitate to contact me. I'm always here to help if you need me.

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Andrew Fortune is a full-time REALTOR in the Colorado Springs area who enjoyscreating unique content for the real estate community. He is dedicated to his family,his career, and to trailblazing new ideas within the real estate industry. He also enjoysnew technology and is consistently learning different coding practices and SEOtechniques to help this website perform to it's top potential.