A Utah home buyer needs to understand all the costs of buying real estate. Here is a list of the most common costs home buyers should be prepared to pay.
All the fees of buying real estate can add up fast. As a Utah homeowner and full-time discount realtor, I know how expensive real estate transactions can be for a Utah home buyer.
This article will help you understand closing costs, real estate agent commissions, lender fees, down payment assistance programs, earnest money deposits, and more.
After reading this article, you will be financially prepared for the inevitable expenses of buying a home and how to avoid some of the unnecessary fees.
Cost Of Buying A Home
An upfront payment to the lender at closing based on a percentage of the home’s sale price and loan type.
Down payment amounts vary drastically depending on the loan type. For example, a primary residence's down payment requirements range between 0% to 20%.
The loan amount will be reduced in direct proportion to the down payment.
For example, if the purchase price is $600,000 and you put 5% down (minimum down for conventional mortgage), your loan amount will be $570,000.
$600,000 x 5% = $30,000. $600,000 - $30,000 equals $570,000.
Down payment assistance programs are available through the Utah Housing Corporation and can greatly reduce the out-of-pocket cost of buying a Utah home. Home buyers must work with participating lenders.
A home buyer education course may be required.
FirstHome is a down payment assistance program for first-time home buyers with a minimum credit score of 660 and meets county-specific income limits.
FirstHome is for buyers that qualify for an FHA loan or a VA loan to purchase a primary residence only.
HomeAgain is another down payment assistance program available through Utah Housing Corporation.
HomeAgain does have income limits but does not have a purchase price limit. This program is another great option to reduce the money needed to close on a home.
Buyer taking advantage of payment assistance programs still need to be prepared to cover their closing costs.
Earnest money doesn't qualify as a separate fee since it is a prepaid down payment. The earnest money deposit must be delivered to the buyer's brokerage within four calendar days after going under contract.
In Utah, the buyer's brokerage has another four calendar days after receiving the earnest money to deposit the buyer's money into the brokerage trust account.
The typical earnest money amount is 1% of the purchase price.
The earnest money deposit demonstrates to the seller that the homebuyer is serious about purchasing the property. The typical earnest money amount is 1% of the purchase price and, depending on the contract, is usually refundable through the Due Diligence Deadline (inspection deadline).
If you go under contract to buy your primary residence for a $500,000 home and make the minimum 5% down payment on a conventional mortgage, your remaining down payment of $20,000 will be due at settlement.
Here's how that works. $500,000 x 5% equals a $25,000 down payment, but you already gave your broker 1% or $5000 for earnest money. $25,000 (total down payment) minus $5,000 earnest money equals $20,000.
Closing costs in a real estate transaction are fees charged by various parties involved in the home-buying process, such as lenders, title companies, and appraisers.
A short list of closing fees you should expect includes charges like title insurance, origination fees, appraisal fees, lender's title insurance policy, home warranties, and recording fees.
Closing cost in Utah are around 1% of the purchase price.
The closing cost varies greatly depending on the buyer's lender, but a Utah home buyer should expect to pay around 1% of the purchase price in closing costs.
Real Estate Agent Closing Cost Assistance
Most agents will laugh at a homebuyer if they ask them to use their commission to help pay some of the real estate closing costs.
Not us. We offer every Utah home buyer we work with a commission rebate for choosing to work with us.
The commission rebate we offer the home buyer can be applied to their closing costs on the settlement statement at closing.
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Can Buyers Finance Their Closing Costs?
Like the down payment assistance programs, buyers may receive closing costs assistance by financing these costs into the loan. This is not common practice, and buyers should confirm with their Loan Officers.
Not every lender will allow these costs to be financed and lending guidelines for certain mortgage types may prohibit financing closing costs.
The buyer should realize obtaining closing cost assistance through financing is not cheap. Interest on these costs will be financed for the life of the loan.
Taxes owed on the property are usually paid monthly as part of your mortgage payment. Your lender will pay the property taxes out of the escrow account established at closing.
A policy that provides coverage for the home and its contents in case of damage or loss. Homeowner's insurance is based on the value of the home but are usually under $100 per month.
Real Estate Agent Commissions & Fees
Brokers and agents in the real estate industry love to say that it costs NOTHING to work with a buyer's agent.
A home buyer's agents is typically paid a three percent commission to represent a buyer which is baked into the home's price.
Many real estate agents provide an excellent service and should be compensated for their time, but I can't entirely agree with the statement that there is NO cost for a buyer's agent's services.
Brokerage Transaction Fees (Junk Fee)
Many agents charge transaction fees on top of the 3% commission. These transaction fees are junk fees. I've seen agents charge their buyers an additional $1,000 in brokerage transaction fees.
Real estate brokerage transaction fees are JUNK FEES.
I recommend negotiating with the agent and removing the broker transaction fees from the buyer-broker agreement.
One great way to lower the money needed to buy a home is to work with an agent or brokerage like us that offers lower commissions to Utah home buyers by rebating half of the commission we earn back to our clients after closing.
Or, the buyer can use the agent's rebate as closing cost assistance.
Aaron Peters is the creator of DiscountAgent.com. Aaron has sold over $150,000,000 in Utah real estate and has over 110 five-star Google reviews.
Lower Commissions. More Experience.
Home Owner Association (HOA) Reinvestment Fees
Utah HOA reinvestment fees are often inaccurately referred to as transfer fees. Transfer fees are illegal in Utah, but reinvestment fees are very common. Reinvestment fees are collected to help maintain the community.
Most reinvestment fees will be between $100 and .5% of the purchase price. These fees can get expensive quickly, and most of the time, the buyer will be responsible for paying the reinvestment fees unless their agent negotiates with the seller to pay some or all of the fees for the buyer.
HOA reinvestment fees range from $100 to .5% of the purchase price, which can be thousands of dollars.
If a buyer purchases a $700,000 home in a Utah HOA with a .5% reinvestment fee, then the buyer will be on the hook for $3,500 at closing. OUCH!
Make sure you know how much HOA fees are before offering to purchase a home.
Wire Transfer fee
Utah title companies can not receive cash to close for more than $10,000. Any cash required to close above $10,000 must be wired. The cost of the wire depends on the bank the buyer uses. Most banks charge between $25-$50 for the wire. Title companies usually do not charge to receive a wire, but it's always a good idea to confirm with your Escrow Officer.
Home inspections are not a loan requirement, but it would be unwise to trust the seller or move forward based on a property's appearance. Home inspections can minimize future repair costs by addressing defective issues before purchasing the home. Home inspection cost starts at $300 and goes up from there based on the additional inspections you request.
Types Of Home Inspections
As a Realtor, it's important to understand the various fees associated with obtaining a mortgage. These fees are important to consider and budget for when purchasing a home.
Loan Origination Fees
This upfront cost is paid at closing to your lender for processing the loan. It's common for loan origination fees to be one percent (1%) of the buyer's loan amount.
The higher the buyer's down payment, the lower the origination cost since these fees are based on the loan amount, not the purchase price.
Discount points are optional fees that can be used to lower your interest rate. Think of discount points as prepaid interest.
You pay an upfront fee to secure an interest rate below par rate. Par rate is the current rate for your home loan without lender credits or discount points.
Fee charge to submit your loan to the lender. This is widely accepted as a junk fee. Some lenders will charge hundreds of dollars while other lenders charge zero. We don't recommend paying these fees
Credit Reporting Fee
Credit reports are necessary to determine if you qualify for a home loan and the interest rate the lender will offer you. Just because credit checks are a requirement doesn't mean paying for them is. Not all lenders charge to check your credit, but if they do, it is usually less than $50.
Most people believe the appraiser is protecting the home buyer from overpaying for the home they're purchasing. That's not true. The appraiser is looking out for the lender to ensure the lender is not taking on excessive risk by lending a buyer money to purchase the home. Just because you think the home is worth a million dollars doesn't mean the appraiser does. Either way, you pay for the appraisal regardless of the value the appraiser gives the home, even if the appraisal comes in below the agreed purchase price, which ultimately makes the deal fall apart.
Most appraisals in Utah cost around $600.
Private Mortgage Insurance (PMI)
Insurance on conventional loans for borrowers who put down less than 20% of the home's value as a down payment. PMI can be removed from your monthly payment once your loan to value is 80/20.
Mortgage Insurance Premium (MIP)
Mortgage insurance on an FHA loan is called mortgage insurance premium (MIP) and is added to your monthly payments. MIP can never be removed from your monthly payment.
However, you can refinance into a conventional loan to have your MIP removed. Well, only if your loan to value is 80/20, which happens once you've paid the loan down, the market goes up, or a combination of the two.
Title Company Fees
Here are some title fees you can expect to pay when buying a home in Utah. Buyers and sellers will pay their fees. Well, usually. That depends on whether it's a seller's market, buyer's market, or the policy of the builder your buying a home from. Some builders won't pay for an owner's title policy since the house is brand new.
Let's take a closer look at the various title fees you may encounter:
The title company will conduct a title search to review the property's existing title history and ensure no defects in the title.
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Title Insurance Fees
The title company will provide you with a policy that ensures the property against unrecorded defects in the title, as outlined in their commitment.
Owner's Title Policy
The cost of the Owner's Title Insurance Policy is based on a percentage of the sales price and is almost always paid for by the seller. This policy protects the buyer from defects and liens discovered after closing on the home.
Lender's Title Policy
The mortgage company's Title Insurance Policy cost is also based on a percentage of the sales price. The buyer pays this policy to protect the lender against title defects and liens.
A flood certificate may be required if the property is in a flood zone. This is pretty rare in Utah. After all, we live in a desert.
This is the fee charged by the title company for their services in processing your file.
The fee charged by the title company for all required transaction documents.
The title company will record the deed with the county recorder's office. This fee is minimal (under $100) and typically passed on to the buyer at closing.
Cost Of Homeownership
The cost of moving can add up quickly, depending on how far you're moving from and the amount of clutter you've accumulated over the years. Not having a house to accumulate lots of unnecessary stuff is one of the perks of being a first-time home buyer.
Homeowner’s Association (HOA) Dues
If you purchase a property in a neighborhood with a homeowners association, you'll need to pay this fee to cover the costs of maintaining and operating the community. The amount of these dues will vary depending on the amenities offered in the community.
For example, properties in townhomes or condos may have higher fees to cover exterior maintenance, lawn care, parks, walking paths, swimming pools, and pavilions.
Property Maintenance and Repairs
As a homeowner, you're responsible for any repairs or maintenance needed on your property. It's a good idea to set aside for inevitable future maintenance.
You can purchase a home warranty for added protection against future repair costs that your homeowner's insurance may not cover.
The cost of maintaining your lawn and landscaping can vary greatly depending on the size and features of your property. Or you can xeriscape your yard and stop wasting your weekends mowing, timing, watering, and weeding your yard.
The cost of water, gas, and electricity can vary depending on where you live. Before purchasing a home, I would like to ask the owner to provide you with estimated utility costs.
This post was about Utah home buyer costs to help ensure you're fully financially prepared when it is time to buy your next home. The cost of buying a home extends well beyond saving up for a down payment.
My Assistant Toeby
My name is Aaron Peters. I'm a full-time discount real estate agent in Utah and the creator of DiscountAgent.com. Thank you for taking time out of your busy day to read this blog post. I'm always open to suggestions from readers.
Toeby(a.k.a Toesy) was born with only three toes on his front left paw. Luckily for him, his only job requirement as my assistant is to nap and remind me that life isn't about sitting at my desk staring at a computer all day. Who's a good boy?
Contact me at 801.243.8900 If you own a company and would like to participate in an interview that is helpful to DiscountAgent.com readers.
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