You have enough money to pay cash for a home – congratulations! That is a very big accomplishment. Before you start counting your chickens, though, you should know the different fees you have to pay regardless of the fact that you won’t need a mortgage. Every home purchase has closing costs that coincide with it. Some of the fees you pay and others the seller pays. The costs will likely be lower than your standard amount because you don’t have a loan, but they can still amount to thousands of dollars in fees. Knowing ahead of time what you have to pay can have you properly prepared when you get to the closing table.
Fees Pertaining to the Home
No matter if you take out a loan or you pay cash, there are certain things you want done to make sure the purchase is a solid one. One of the most important things to have done is an appraisal. Yes, this is a requirement by lenders to make sure there is enough value in the home in order for you to qualify for the loan. However, you should still have one done if you pay cash. Do you really want to invest in a home before knowing its true value? What if the seller was way off base on his asking price? Do you want to pay a few thousand dollars more for a home than it is worth? If you plan to stay in the home for only a short time, you could end up losing out on the deal. This is why the $400 or so appraisal is well worth every penny it costs.
Another important process to have done before you purchase the home is a home inspection. The appraiser can tell you the value of the home and point out surface defects that you might want to take up with the seller. The home inspector, on the other hand, goes deeper into the issues with the home. He can tell you if there are plumbing, electrical, or mold issues, just to name a few things. He looks for the big issues – the ones that would cost you a lot of money down the road. Once you have the inspection report back, you can decide if the house is in the right shape for you to purchase it. If there are things wrong with it, hopefully, you can negotiate with the lender to fix them; otherwise, you might want to back out of the deal.
Title Search and Insurance
A title search is something a title company runs for you. This helps to ensure that there are no overlooked liens on the property. The last thing you want to do is purchase a home with liens on it because they become your liability then. The title examiner will go back many years to ensure that everything is clear and all transfer of ownership occurred legally to prevent future issues. The title search is often one of the well-earned closing costs you pay as there is no alternative to finding out what is on your title.
Aside from the title search is the need for title insurance. This is generally a fee you pay when you take out a mortgage. Lenders require it because it protects them down the road if someone were to come back and stake a claim in the property. When you pay cash for the home, though, you don’t have to purchase title insurance. It is highly recommended, though much for the same reason the lender requires it. Even if you receive a clear title search, there is no guarantee someone will not come back at you years down the road and stake claim on the home. What if some type of lien pops up that was overlooked at some point? Without title insurance, you would be liable for the costs to fight for your claim in the property. Title insurance is not too expensive – it can vary depending on where you live, but you can generally get it for less than $2,000. This is a lot less money than it would cost you if you were sued in the future!
Another debatable fee you may have to cover is the survey. This is usually up to personal preference, but is another service that is highly recommended. The surveyor helps you to determine your exact property lines and what might lie on your property. For example, if you have a water line going through your yard, you could face issues in the future if the city needs access to it. You may also want to know if your potential new neighbor encroached on your property lines with his fence. These are the things the survey will tell you. This gives you peace of mind that everything is good with your property. It also lets you know if you have room to expand or add things like a pool in the future.
City or County Fees
Any time a piece of property changes ownership, the city and/or county get involved. This means more closing costs for you. Generally, you have to pay real estate transfer taxes (sometimes the seller pays these) as well as any costs to produce forms or record any new documents. The fees are usually not exorbitantly high, but they add to the cost of the home, nonetheless. Check with your county to determine how much money you need to close on a home while paying cash. The one thing you do luck out on is the lack of need to pay for tax transfer stamps – this only pertains to borrowers who take out a loan. They pay the transfer tax based on the amount of money they borrow.
This is another fee that you may or may not incur – it is up to personal preference. If you secure an attorney for the closing, of course, the fees will vary. How much you use the attorney for and how long he has to work on your file will help to determine the fees. You can expect to pay anywhere between $500 and several thousand dollars depending on the complexity of the home purchase.
Closing Costs Vary
As you can see, closing costs vary based on many factors. If you want to keep your closing costs as low as possible, you can negotiate certain fees, such as any title fees or even those from an attorney. Other fees, such as city or county fees are non-negotiable. Remember, you will likely receive a tax credit from the seller for the time he lived in the home since taxes are paid in arrears. For example, if you purchase the house in September, the seller is responsible for the real estate taxes from January through the end of August for that year. He will give you a credit for this amount at the closing, which can decrease the amount of cash you need.
Closing costs are certainly more affordable when you don’t need a mortgage, but they can still add up. Talk with the various professionals you will use for the purchase of your home to determine the exact costs you will incur. This way you can be the best prepared for your closing with no unpleasant surprises that you don’t have the money necessary to close on the home.