The Less Obvious Costs of Buying A Home

If you’re a first time homebuyer, or it’s been a while since you bought your home, you’re probably wondering what added costs are involved in purchasing a home, aside from your down payment.  Once you are under contract to purchase a home, your lender will provide you with a loan estimate, which will include an estimate of all closing costs.  However, you may want an idea of what these costs look like long before reaching that point in the homebuying process.  And rightly so:  it’s important to be informed ahead of time to avoid surprises – just a little preparation can make all the difference.  A general rule of thumb is to budget for 1% of the purchase price towards closing costs.  Below is a rough estimate* of some of the costs that might be involved with your home purchase.  (Please note these numbers are based on the San Francisco Bay Area real estate market and may vary.)

Down Payment

OK, I admit this one falls into the “obvious” category, but it had to be mentioned.  Generally speaking, you will need 10%-20% of the purchase price for a down payment.  The median price of a home in San Francisco is currently $1,315,500, so you may need $150,000-$300,000 for a down payment on average.

Inspection Fees

If you’ve negotiated an inspection period with the seller, you may decide to conduct a variety of home inspections.  A general property inspection in the San Francisco Bay Area can cost anywhere from around $500-$1000.  A pest inspection and roof inspection can also cost a few hundred dollars each.  Often times these general contractor inspections will refer you to a specialist – such as a chimney specialist, structural engineer, electrician or plumbing professional – who may have their own fees for an inspection or consultation as well.

Attorney Fees

Depending on your particular circumstances, you may also want to consult an attorney, whether that be a trust and estate attorney, landlord/tenant attorney, TIC specialist, or someone else.   These attorneys typically charge a few hundred dollars per hour for a consultation, although some may offer brief, complimentary consultations.

Appraisal Fees

If you are financing your home purchase with the help of a lender, the lender will order an appraisal of the property.  This can cost from around $500-$800 and is not typically something you can shop for.

Escrow Fees

In a purchase transaction, escrow is the process of having a neutral party manage the exchange of money for real property.  The escrow holder is usually referred to as an escrow officer.  The buyer deposits funds and the seller deposits a deed with the escrow holder along with all of the other documents required to remove all “contingencies” (conditions and approvals) in the purchase agreement prior to closing.  The charge for these services are typically $1,500 or more.

 Recording Fees

The fee to record title documents (deed) with the city/county in which your property is located is typically $150-$200 in the San Francisco Bay Area.

Title Insurance

An owner’s title insurance is optional, but, in most cases, a good idea.  It insures buyers against the risk that they did not acquire marketable title from the seller and provides coverage for certain losses due to defects in the title that, for the most part, occurred prior to your ownership.  This can include things like deeds by persons supposedly single, but actually married; marital rights of spouse separated but not legally divorced; deeds by persons of unsound mind; mistakes in recording legal documents; and claims of creditors against property.  There is only one payment for title insurance, which the buyer typically pays at the close of escrow, and can be $1,500-$2,000.

Lender Fees

Lender fees vary widely.  These fees could be anywhere from a few hundred dollars into thousands of dollars, so it’s important to ask about the lender’s fees when shopping for a loan.  Typically a lender will also require you to purchase a lender’s title insurance policy as well, which may be $1,000-$2,000.

Transfer Tax

In some areas, the buyer may pay all or a portion of city/county transfer taxes.  The amount of tax varies by location and price range.  In San Francisco, the seller is typically responsible for city transfer taxes.  For a million dollar home in San Francisco, the transfer tax is approximately $7,500.

Moving Expenses

Finally, moving day is here! With everything going on during the closing process, it’s easy to forget about the logistics of moving.  Don’t forget to schedule a mover to help you move into your new home; moving companies can fill up weeks in advance, so book it as soon as you know your moving date.  Moving expenses vary starting from $150 per hour.

If you’re currently renting, keep in mind that you should receive some or all of your security deposit back within a few weeks of moving out.  You can definitely put some of that towards the costs of your new home!

 

*These estimates are conservative and will vary for each transaction based on multiple factors, such as purchase price, property type, location, terms of the contract, type of financing, etc.  Homebuyers should consult a real estate professional for more information.

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