Be sure to get a copy of the HUD settlement costs booklet.  Lenders are required to give it to borrowers at the time they sign a mortgage application.  Download Buying Your Home here.  What follows is our summary of some of the costs involved in purchasing real estate and/or financing it:  

There are 3 major categories of costs and fees associated with purchasing a home:

• Down Payment          

• Closing Costs

• Pre-paid Charges

• Other charges 

The Down Payment can range from nothing down, for Veteran's Administration insured and RHA loans, to 35% or so for some non-conforming loans. There are also some non-conforming programs that allow 100% financing that is done by giving a first and second mortgage at closing.

Be aware, that the funds you pay as a down payment are not always required to be in the form of cash. Some loans allow some form of additional financing, such as the seller taking back a second mortgage. For example, the lender may require only 5% of the buyer's own funds while they finance 80% of the sales price with a first mortgage and note. That leaves 15% that must come from elsewhere if the buyer doesn't have it in the form of cash. If the seller is willing, he can hold a mortgage for the 15%. There is not relationship between the two mortgages, so the buyer-held mortgage can have a different rate and term than the second mortgage. There is also nothing to prevent the buyer from "forgiving the debt" represented by that second mortgage and destroying the note before it is paid in full. That is between the buyer and seller.

FHA generally requires a 3% minimum cash investment from the buyer. But there are 4 things you need to know: 

• First, the 3% does not represent merely the required down payment from the buyer. It is the minimum cash the buyer is expected to invest in the transaction. The down payment requirement itself is 2.25% and only 1.25% if the sale price is less than $50,000. The balance of the minimum investment is applied to the other mortgage costs. 

• Second, the minimum investment can come from a gift if the gift is properly documented. The gift may be come from a close relative or in the form of a grant from an agency that is approved to provide down payment assistance to first-time buyers.

• FHA requires an upfront mortgage insurance premium and monthly mortgage insurance premiums.  This "up-front" premium is due at settlement but it is generally added to the loan amount, rather than paid "out of pocket".  Bear in mind that the up-front money can increase the loan amount above what is allowed in the property's county or what the appraisal says is the property's value or what the underwriter says the borrower can afford.

• Third, the minimum investment may be lowered in some instances. For example, the Nehemiah program takes a 4% fee from the Seller ands lets qualified buyers obtain an FHA loan for only a 1% minimum investment.

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Closing Costs consist of varying charges. Most are self-explanatory:

• Title company fees--these pay for title insurance, title search and other judgment and tax searches and miscellaneous fees. Figure between .8% and 1% of the sales price

• courier and express mail fees to deliver documents promptly. $15-$30

• Survey and home inspection fees. Surveys range between $250 and $1500 depending on the size and location of the property. Home inspection fees range between $150-$500. Both surveys and home inspections average about $300 each for average size homes and lots.

• Flood certification which is to determine if the property is in a flood hazard zone. $15-$30.

• Commitment & Underwriting fees--related to the cost of approving the loan. $150 to $2000 or more. Unscrupulous lenders may quote unusually low interest rate and then surprise borrowers with exorbitant commitment or underwriting fees. Caution! Underwriting fees are, generally, prohibited in NJ for residential loans and commitments should be in the range of $400 to $600, in most cases,   though they may be larger if your credit is damaged.

• Appraisal fee--pays for determining the value of the property. $150-$500.  Conventional appraisals average about $300.  FHA and VA appraisals are a bit more complicated and average about $450.

• Pest inspection--determines whether the property has wood-destroying insects present or damage from them. This doesn't include the cost of pest control treatment or repairs if an infestation or damage from one is found. (Your contract should state who is responsible for the cost of that treatment or repairs, if they are needed.) $35-$75.

• Recording--the cost of filing the mortgage & deed (and canceling an existing mortgage), so as to put them into the public record. In New Jersey, the cost for refinance recording is about $275 and purchase recording costs about $325.

• Condo package or membership fee--some condominiums require that a buyer pay a fee to join the condominium association. Varies wildly. Find out in advance.

• Attorneys fees--either your own attorney or possibly charges from the lenders attorney for document preparation or review. $200-$1000.  Figure to spend in the middle of that range if no unexpected problems occur.  Don't be "penny-wise and dollar-foolish" if you are not experienced in real estate and mortgage matters. 

• Notary fees--pays for the acknowledgement of signatures. Acknowledgement is required on documents in order that they may be filed in the County Clerk's Office. $5-$25

• Settlement fee--paid to the title company or settlement officer for their services or as a "room charge". Generally $300 to $400 split between buyer and seller. If an attorney is handling the settlement without the use of a settlement officer, the settlement fee will go to them.

• Utility Charges and Taxes--items like water and sewer bills, as well as real estate taxes, that are due or were already paid for past periods are prorated and split between the buyer and seller.

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Pre-Paid Costs include items that are placed in escrow to cover future charges or that pay items that are due in advance:

• Real estate taxes that are put in escrow or that pay the balance of the present tax quarter (& sometimes the next quarter). this generally amounts to between 2-4 months of tax. If you don't know, figure annual taxes at 3% of the sales price. But check this out in advance. It varies widely with locale and depends upon whether taxes are due monthly or quarterly.  In NJ, taxes are paid quarterly and include school, municipal and county taxes.  You can expect to be required to pay the present quarter's taxes if you settle in the first or second month of the tax quarter.  If you settle during the third month of a tax quarter, expect to be required to pay the following quarter at settlement.

• Homeowners insurance--Fire and liability insurance that usually consists of one year that must be paid prior to the settlement and 1-3 months of insurance that is escrowed at the settlement. Many condominiums include fire and liability insurance as part of the monthly "condo fee". (Bear in mind that it may not include "contents" insurance.) Assume about 1/3% to 1/2% of the appraised value.

• Condominium fees--the fees charge by condominium associations to cover maintenance and insurance. Can range from 0-4 months up front at settlement. Varies tremendously. Find out in advance.

• Mortgage Insurance Premiums (MIP)--Generally required when there is minimal equity in the property, this protects the lender from financial loss in the event of a foreclosure. It ranges from 0-2 months or premiums at settlement. If a larger upfront premium or funding fee is required (as is the case with FHA & VA loans), it is generally financed into the mortgage. That fee may increase the mortgage over the appraised value and that is generally allowed. Upfront charges can be 1.5%-4% of the sales price. (for first-timers, figure 2% for VA and 2.25% for FHA). Most conventional loans do not require upfront mortgage insurance premiums, but it is not unheard of.

Other Charges--Don't forget these charges that may appear at closing or need to be paid around the time of closing:

• Repairs charges you agreed to accept

• Debts you agreed to pay off or required by the mortgage commitment

• Utility deposits

• Moving costs, even if paid to friends or a "U-Haul" company

• Moneys needed to take care of voluntary items such as new carpeting, etc.

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