If you haven’t read my recent post about purchasing my first rental property, I bought a multi-family house in July 2018. Below are a few unexpected costs I didn’t expect to pay when I was first looking for properties.
Unexpected Cost to Close
The inspection is an avoidable expense as your not required to get one. However, if you don’t you are accepting the risk of a hidden issue with a house. For me, the inspection cost $500 and since the house is 91 years old I wanted to follow through with it to ensure there were no issues with the property before settling.
Also, prior to inspection, there was a list of items I wanted the seller to address prior to closing. With the items listed in the inspection report as potential issues, I had more leverage when asking the seller to repair the issues.
Termite Inspection costs $75
A termite inspection is an optional cost similar to an inspection, but I’d highly recommend it. If you close on a house and later find termites due to neglecting to shell out $75 you’re going to regret it.
Appraisal Fee $500-$750
The appraisal fee is a non-negotiable cost that’s required by my mortgage company. This cost can range from $500-$750 depending on your mortgage company. This is an additional cost paid prior to settlement.
Another item required by the mortgage company, the cost of the survey was $400, which provided me the details of my property lines.
Elevation Certificate $100
An elevation certificate is useful for properties in flood zones. My property is on a barrier island in Ventnor New Jersey, therefore, the house lies in a flood zone and it was in my best interest to get an elevation certificate. Why? When I was shopping for flood insurance I was told an elevation certificate would help me get a lower rate. Unfortunately, that wasn’t the case for me as it didn’t lower my premium, however, I’d advise getting it if there’s a chance it could. The cost of the elevation certificate was only $100 but it was bundled with my survey costs so I think I got a deal.
Home Owners Insurance (HOI) and Flood Insurance Premium
Be aware that insurance companies expect you to pay insurance in full for the year upfront. So if you purchase a house on January 1, 2018 you pay your entire insurance for the year 2018 on January 1st. It’s not like car insurance where you pay as you use (monthly with no initial premium up front). Both my Home Owners Insurance and Flood Insurance premiums were due upfront.
Home Owners Insurance (HOI) and Flood Insurance Premium’s paid in escrow
Instead of paying your insurance premiums at the end of the first 12 months after purchasing your home, your mortgage company starts collecting your insurance premiums each month. To close I had to pay an additional 3 months worth of premiums in escrow. This isn’t a big deal since it’s money on the sidelines waiting to get charged when the next bill is due however it’s an additional cost to close that I didn’t calculate.
Upfront Mortgage Insurance Premium
Since I bought the house using an FHA loan, 3.5% I am required to pay mortgage insurance. I didn’t realize I had to pay the mortgage insurance premium up front. This is similar to home and flood insurance but this roughly 1.7% of your mortgage!
During the closing process, you get nickeled and dimed on everything! Be aware of all of the little charges and make sure you ask what every charge is for. Some of the miscellaneous fees are Origination Fees, Credit Report Fees, and other small line items on your loan estimate. There are also a lot of minor costs in the title fees as well.
Origination Fees (Points)
Do not pay for points!!! Negotiate, negotiate, negotiate. I can’t stress that enough, mortgage companies are trying to get your money and will make it seem like you have to pay for better rates. That’s simply not true, I was able to have two mortgage companies battle it out for my business and they both removed their origination fees to gain my business.
To put this in perspective, the costs to purchase a $250,000 cost me roughly $14,800.
Closing costs are roughly 6% of your purchase price so ALWAYS calculate that into the equation.
I hope this helps for those looking for their next property or if you’re just starting out. If you have any other tips, watch outs, or questions please leave a comment below!