Buying a house typically comes with a lot of paperwork to navigate — including home fees and other costs that you’ll want to track.
While you’re shopping for a loan, you’ll want to educate yourself about the various fees you may face when buying a house. You may be able to find some of these closing costs, along with your estimated interest rate and monthly payment, in your loan estimate, which the lender must provide within three business days of receiving your application.
With a bit of planning, you might even be able to get rid of some of these fees, or find more cost-effective alternatives. Read on to learn more about some of the fees you can face during the buying process.
- One-time closing cost fees
- Ongoing fees
One-time closing cost fees
There are a variety of costs associated with getting a mortgage. On average, closing costs are 2% to 5% of your total home purchase price. But you may be able to find lower fees if you shop around or negotiate lower fees with your lender.
“Junk” or “garbage” fees are excessive fees tacked onto your mortgage. If you see a fee that seems excessive or out of place, such as an application fee or mortgage rate lock fee, you should press your lender for more details.
Unsurprisingly, what some lenders call a “no-cost loan” is oftentimes too good to be true. You’ll likely make up the cost through an increased loan amount or through an increased interest rate.
Take a look at the fees below so that you’re prepared. Some you’ll see as closing costs on your loan, and others may be ongoing.
1. Appraisal fees
You’ll usually need an appraisal — an estimated value of the house you want to buy — before you get a mortgage so lenders can calculate your loan-to-value ratio. Appraisals must be done by an objective third party and incur a one-time fee, so these generally aren’t negotiable. Appraisal fees will vary depending on where you live and the size of your home, but you can expect to pay anywhere between $300 and $1,000.
2. Home inspection fee
You also may have to pay a home inspection fee. Lenders may require a home inspection fee to confirm that your house is livable and structurally sound. You can expect to pay around $300 to $500 for a home inspection, but the exact figure will depend on your home and where you live.
You’ll typically be able to choose a home inspector and pay them directly when they visit the home you’re considering.
3. Credit report fee
Lenders will pull your credit reports and use their own risk-analysis models to determine your creditworthiness. Your credit scores may affect your loan amount and interest rate.
Keep in mind that creditors will likely make a hard inquiry on your credit, which may affect your credit scores. But mortgage-related credit checks within a 14-day period will typically count as one pull (for scoring purposes) — though the shopping window could be longer.
Credit report fees may range from $30 to $50 per report, though some lenders cover the cost themselves.
4. Document preparation fee
It costs your lender time and money to provide you a loan estimate. This fee typically covers administrative and other costs for your loan. Document prep fees are typically $50 to $100 but may vary by lender.
5. Loan origination fee
The loan origination fee is probably the largest single closing cost you’ll encounter, as it’s the primary way lenders make money. Lenders typically charge 1% of the total loan amount for the origination fee. For example, if you take out a $100,000 mortgage, the fee would be $1,000.
6. Title fees
When buying a home, the title will need to be transferred from the seller to the buyer, which can result in a variety of fees.
For example, you may need to pay a title search fee to the title company for doing a search of the property’s records to ensure no one else has a claim to the property.
You may also have to pay your local recording office to record the real estate purchase so that it becomes a matter of public record. This recording fee can vary depending on where you live.
Additionally, lenders may require you to purchase lender’s title insurance, which protects the amount they lend. You may also want to buy owner’s title insurance, which is meant to help protect your financial investment in the home.
The exact taxes you pay at closing will depend on where you live. But buyers often prepay two months’ worth of county and city property taxes at closing. Property taxes are usually paid in advance, so the buyer may need to reimburse the seller.
You may also face a transfer tax, which the government imposes on the passing of title to property. Transfer taxes vary by state and municipality, and they may be split between the buyer and seller depending on their agreement.
Interest is the cost you pay for borrowing money from a lender. Your interest rate can end up costing thousands of dollars over the course of the loan, so it’s important to understand what it is.
A common example of a variable-rate mortgage is an ARM, or adjustable-rate mortgage. These mortgages typically start with very low interest for the first few years — often even lower than a fixed-rate mortgage. After the introductory period ends, the interest can increase. Since the interest rate after the introductory period is often tied to an external index, the interest could also go down. ARMs can have limits on how high or low the interest rate can go after the introductory period expires, so make sure you read the fine print carefully.
A lot of factors can affect what rate you’ll pay on your mortgage, like your credit scores, your down payment and the type of loan you get.
2. Property taxes
Many places require you to pay property taxes on any real estate you own. Property taxes are typically set at a local level and are often due annually, though some places divide up the payments throughout the year. Before you buy, it’s a good idea to check out how much you’ll pay in property taxes to make sure you can afford them every year.
3. Private mortgage insurance
If your down payment is less than 20% of your home’s purchase price, you might be required to get private mortgage insurance, which is meant to protect the lender in case you stop making payments on your loan. This is usually a recurring fee, but you may be able to cancel it after you’ve paid off more than 20% of your home.
4. HOA fees
Some communities, especially those with condos and town houses, require you to join a homeowners’ association, which helps pay for upkeep on common areas and buildings. Your mortgage lender might list HOA fees in your loan estimate. Per the U.S. Census, typical condo association fees are $200 per month but tend to vary from property to property.
Before you start shopping for homes, carefully consider your other expenses and budget and make sure you can afford both a down payment and any fees or closing costs you may encounter during the process.
If not, you may want to take some additional steps to get your finances ready to buy a house.
Mortgage rates where you live
Mortgage or refinance rates depend on different factors, including where you live. To better understand what rates you may qualify for, including what the average mortgage or refinance rate is in your area, take a look at Credit Karma’s marketplaces for mortgage rates and mortgage refinance rates as well as our latest state-specific guides.
Estimate your closing costs
Use our closing costs calculator to get a better idea of how much your closing costs could be when buying a home.