Expenses Involved in Home Purchase

Photo of a Family after Having Sold Their House

How much does a home cost? Before you get too comfortable with the asking price in the real estate ad, you should be aware of all the expenses you will be expected to pay.

First, there is the price of the home itself. The seller offers his or her house for sale at the asking price. This price may be negotiable depending upon the condition of the home and other factors. After the negotiations are done, the agreed-upon price becomes the cost of the home. To secure this cost, the buyer is expected to make a non-refundable payment to the seller. This is called earnest money. This amount will be deducted from the amounts paid when the sale is completed.

Most people finance their home purchase through a mortgage loan from a bank, credit union, or other lender. Many mortgage lenders require a fee that may include the cost of the application as well as appraiser fees, credit reports, and costs to acquire the loan, such as a loan origination fee and "points," a fee as a percentage of the loan amount. Mortgage loans rarely cover 100% of the purchase price, and a cash down payment is expected at the closing, when the transaction is finalized.

All of the costs involved in closing a home purchase can add from 3% to 10% to the cost of the home.

The lender may also require that you have the title to the deed insured, in order to guarantee that someone else cannot claim the property from you after the sale. Title insurance guarantees that the seller is the real owner and has all rights to transfer ownership. You pay a premium to the title insurance company for this service. You may be required—and it certainly is a popular idea—to insure your new purchase with hazard (i.e., fire, earthquake, flood, etc.) insurance. You may also be requested to purchase mortgage life insurance (optional) and private mortgage insurance to protect the lender from default due to your insolvency.

Real estate transfers are complex legal matters in most states. You may have an attorney to advise and help with negotiations and paperwork leading up to, and including, signing of all agreements. You will also need additional cash at the closing to cover fees for recording the new deed to your home, as well as a deposit for real estate taxes.

Together, all of the costs involved in closing a home purchase can add anywhere from 3% to as much as 10% to the cost of the home, in addition to the actual down payment applied to the purchase.

The price that the seller of a stock or other asset requests.

Land and the physical property attached to it, such as houses, buildings, factories, and trees. Where applicable by law, real estate may include gas and oil leases.

A non-refundable payment made by a buyer to a seller to secure the price that was agreed upon, and that may be deducted from the amounts paid when the sale is completed.

To raise money by selling stocks, bonds, and other notes. In economics, finance is the practice of extending credit and backing ventures, both with the purpose of making money.

A loan to buy real estate property, usually secured by the real estate property itself.

A business, with a state or federal government charter, that provides services such as paying interest on deposits, issuing and collecting checks, and making loans, especially to businesses. Shareholders receive part of a bank's profit as a return on their investment in the bank, represented by the stock that they've purchased.

A not-for-profit financial cooperative owned by its members. One is eligible to join a particular credit union if he or she belongs to the field of membership defined in its charter. All members have the right to democratically elect a board of directors. The board gives the credit union's management and staff general instructions. Historically, credit unions encourage thrift among members and provide them with credit at a low rate.

A record of your credit history.

What one must pay for materials, services, and other necessities to operate a business, organization, or household.

Money that has been borrowed from a creditor (lender) by a debtor and that must be repaid. Loans may also be referred to as liabilities.

A percentage of a loan charged to cover the administrative costs of processing a loan.

1. The percentage of a loan's principal paid in advance as pre-paid interest. 2. The measurement unit used to report prices of securities. In stocks, it is $1. In bonds, it is $10. In commodities, it can be any convenient fraction.

1. Currency and coins. Cash is also known as legal tender. 2. The currency, coins, bank balances, and (negotiable) money orders and checks that a business owns.

An insurance policy that protects a buyer against loss due to prior ownership claims against real property.

1. A regular periodic payment for an insurance policy. 2. An additional cost above the normal cost. 3. The amount by which a security sells above its par value. If an investor buys a $1,000 bond for $1,030, she has paid a premium of $30.

A contract in which one party, called the insurer, agrees to protect another party, called the insured, against loss, damage, or medical costs in return for a premium. Another way to look at insurance is to see it as the assumption of risk by another party. In return for a periodic fee (the premium) and a set of requirements by which to abide, an insurance company will assume risks taken by those covered. Insurance companies are regulated by the insurance commissioners of their respective states or territories.

A form of insurance that pays a specific amount of money to a designated beneficiary after the insured person dies. The most popular types of life insurance are endowment, term, whole life, universal life, variable life, and variable universal life.

Failure on the part of a borrower to pay back what he or she borrowed. Also, the failure of an issuer to pay interest or dividends on a stock or bond. In terms of contracts, it is the breaking of an agreement such that the agreement is terminated.

Being unable to meet debts because liabilities exceed assets. Often, financial recovery is impossible and bankruptcy must be declared.

1. Money placed into a savings account at a financial institution. 2. Money given to a seller as proof of intention to buy a piece of property; also called a down payment. 3. To deposit funds into an account.

A tax imposed on assets willed to heirs. The federal government and many states impose estate taxes. The estate tax differs from the inheritance tax in that it is imposed on the estate rather than on the heirs. Federal estate taxes must be paid by the executor of a will out of the assets of the estate. Transfers of property between spouses are not normally subject to this tax.

Expenses Involved in Home Purchase

Home Ownership