When we have our first meeting and discuss plans with any new real estate client, I like to review a basic home buying costs worksheet.
Knowing the numbers is empowering because it allows clients to see the costs of buying a home and determine a future household budget. I use estimates based on typical costs that I see in Vienna real estate sales. Your numbers may vary slightly.
I put this together for anyone buying a home because, even if you are a novice Realtor reading this, you need to understand costs and how they are calculated to give a close to accurate ballpark estimate.
This educational effort should be top on your list.
Everyone Wants to Know Costs and Expenses
Everything came to light recently when a new client was pre-approved with Quicken Loans. It seems that their disclosures weren’t very clear to her, and when we met I was able to get into specifics to help answer her questions. The customer service representative probably was well trained but this is a complex topic and doing it with a stranger on the phone can lead to more questions they can’t answer right off a script.
Each worksheet I write will have a Sales Price, Down Payment amount, and Loan Amount. Each will help me calculate individual home buying costs and, eventually, a monthly PITI payment amount.
Lender Origination Fee
You will need to check with your lender, but use $850. The cost may be higher if there is a first and second mortgage (an 80/10/10) or if the sales price is above a million dollars.
Your mortgage lender will want a new appraisal. I also recommend appraisals when clients are paying cash. Yes, it does happen.
On a typical detached home, use $500 in this category. If you are putting down a small down payment (10% or less) or buying an expensive home, you may be required to have and pay for two appraisals due to underwriter guidelines. Ask your lender about this additional appraisal possibility.
Face facts that your credit will be reviewed. Mortgage companies use a “tri-merge” credit report getting all three credit agency reports and scores.
Assume the credit report will cost $60.
If you have Lifelock or a credit alert on your account, be prepared to allow access. This may take a few hours or days so factor that into your plans if you need a fast pre-approval within 24-hours.
Tax Service Fee
There are Escrow Accounts set up with your lender to pay tax bills twice a year (to Fairfax County) and to pay your Home Owners Insurance bill annually.
This fee will vary from lender to lender, but I estimate $85.
Flood Certification Fee
If the house is within a flood area on the official Fairfax County or government flood map, you may be required to have flood insurance. So, you will pay $20 for someone to verify the location of your new house on the map.
Advanced interest is the interest paid from the date of Settlement to the end of the month. This isn’t too difficult to calculate but you will need to know your loan amount, expected interest rate, and the number of days from Settlement to the end of the month.
Int. Rate × Loan Amount ÷ by 360 × Number of Days from Settlement to 1st of Next Month
You will do this on a basic smartphone, and it may be handy to know calculating interest in other financed purchases in the future.
The first year premium is paid up front, so you will want to call your insurance company right after a contract is officially Ratified (everyone agrees to the contract) during your home inspection period.
You want to do this step because if the home has had multiple claims then only the insurance agency will see that in the CLUE database. If there were recent claims and repairs were made, then you should investigate asking questions of the seller.
Each home is unique based on age, distance from a from a station, and size. Having a high deductible is something I recommend because this will be a policy you will only use if there is a catastrophe.
Escrows or Reserves with Lender
Mortgage lenders want to make sure that insurance and property taxes get paid on time, so they will put you on a payment plan. They will escrow money for property tax bills and annual home owner’s insurance.
In Fairfax County, real estate taxes are paid twice a year. The bill is sent to your mortgage servicing company where money has been accumulating to pay that bill. So, take the estimated taxes and divide by twelve. They will put three months of taxes into an escrow account at your Settlement.
Remember that you paid for the first year’s home owner’s insurance policy up front, but they will start an escrow account to pay next year’s bill. Take this year’s premium and divide by twelve. They will put three months worth into an escrow account at your Settlement.
There are a lot of steps taken to ensure that your title is clear and insurable. And these will be broken down by your lender in detail because they involve a Title Search, Title Binder, FedEx or carrier fees and more which may total around $1,800.
The Settlement Fee paid to the firm conducting the Settlement will be around $550.
Title Insurance will be a required item to protect your lender against undiscovered claims like unreleased liens. It will be based on the sales price, and I use $4.40 per $1,000 of the Sales Price to calculate Owner’s Title Insurance. It is a one-time premium.
Government Recording Charges
Your lender may call these “transfer fees” but know that these are transfer taxes. These are collected whenever the Title transfers to a new owner. The mortgage gets recorded too.
Recording the Deed at the Fairfax Courthouse is calculated at $3.34 per $1,000 of the Price plus $43.
Recording the Deed of Trust, that’s what a mortgage is called in Virginia, is calculated at $3.34 per $1,000 of the Loan Amount plus $56.
A few years ago lenders determined that a Survey wasn’t going to be a requirement. This was touted as “a cost savings” and, in my opinion, hide the rising costs of appraisals.
A drawing of your property will cost about $400, but property over two acres may be closer to $1,000. If you want the surveyor to put wood stakes in the corners then that will add a few hundred dollars extra.
My recommendation is to get a new survey just to make sure fences are okay and you know where underground utility easements are located.
Wood Destroying Insect Inspection
During your home inspection period, have a licensed firm come and complete the WDI Report. The cost will be about $50.
Virginia is a caveat emptor state, and it is essential that you hire a professional home inspector to protect your interests.
Home Inspection costs are determined by the size of the home, how many HVAC systems it has, number of bathrooms and floors.
Smaller homes may be $500 while large homes may be $1,000 or more. The fees are due at the time of the inspection and are not included in your lender’s estimate.
Fairfax County does have naturally occurring radon, and it is important to do a short-term (48 hour) test.
The contingency is in the sales contract, but expect to pay $150 for an EPA certified test.
Earnest Money Deposit
Your offer to buy a home will include a deposit. The amount is up to the buyer, but know that it can derail an offer if it is too low.
If your contract is “Ratified” then the deposit must be made into an Escrow account complying with Title 38 of the U.S. Code in five (5) banking days. Saturdays count!
Getting a grasp on typical home buying costs is best when sitting down face to face with a professional.
I decided to do this right at the start with clients because I recognized the murkiness in other situations like, specifically, buying a car. Take your time and let me know if you have questions or could use my helping buying a home.