How much does it REALLY cost to buy a home???
I am asked this question all of the time and usually my answer is followed by; ”Well I was talking to such and such and they said it would only cost me $500 to get into the best home eve” My next response is usually, “I think you should sign up for one of my first time homebuyer classes.”
Sure there are loan programs out there and down payment programs to supplement them but no matter how hard one tries it is going to cost some out of pocket expense to attain this goal. Let me share some of the costs beyond the screaming $500 deal.
Down Payment- Unless you are paying cash or are using your VA benefits to purchase your home most loan programs require a down payment. This amount varies and occasionally you may come across a bank offering a conventional zero down loan, the important information to get here is how much will that cost you in points? (There are down payment programs and you can check out my post on First Time Home Buyer classes for more information.)
Closing Costs- Obtaining a home loan costs money! There are lender fees, title, escrow, prorated taxes and a whole slew of not-free things that you will need to be prepared for. (Working with a REALTOR to negotiate closing costs is an option but sometimes your dream home is owned by someone not interested in paying them for you). Closing costs depending on your loan can range anywhere from 2%-6% of the contract purchase price. I recommend asking your mortgage professional during the pre-approval process what you can expect. Everyone’s financial situation is different..
Earnest Money- The earnest money deposit is an important part of the home buying process. It tells the seller you’re a committed buyer, and it helps fund your down payment and or closing costs. Without earnest money, you could make offers on many homes, essentially taking them off the market until you decided which one you liked best. Sellers rarely accept offers without deposits. In many circumstances, you can get most of your deposit back if you discover something that you don’t like about the home. The amount varies from situation to situation and also the temperature of the market. A good rule of thumb is 1% of the offer amount but discuss what is customary in your market with your real estate professional.
Inspections- The last time I went car shopping I purchased a car that was a few years old and I insisted on getting an independent vehicle inspection and I am so glad I did it! Unless you are a home builder or contractor (even then you should get an inspection) you should plan on investing in getting a whole house inspection that includes a pest inspection. Now days some lenders are requesting to take a look at home inspections so being prepared for that as well is a good idea. These inspections can run from $350-$550 depending on the size of the home and some inspectors offer add on’s such as side sewer camera inspections. I don’t know about you but I would rather spend $600-$700 upfront to know what I am getting into rather then find out after the fact that I have $5,000 (or more) worth of repairs that I did not plan for! Your REALTOR should be able to refer you to 3 or more home inspectors upon request.
Home Warranty- A home warranty is different than home insurance. The warranty covers the main operating systems in the home during a set amount of time, usually a year and can be extended optionally. If one of the covered systems fails, for a service fee someone will come out and repair or replace the failed item(s). I always recommend them to clients and they run in range in price from $350-$500. Consider it an investment in your peace of mind while you get settled in.
Appraisal- Most of the time the cost of your appraisal is roled into your closing costs, however some lenders require that you pay for it up front to get it ordered. Find out what your lender will require and if you will be credited this amount back at closing. These typically run $500-$575.
REALTOR- Who pays Jasmyn? Typically in 99.999% of the time the seller pays both the buyer’s broker and their listing broker’s commission at closing out of the proceeds of the sale of the home. The seller signs a listing contract with a pre-determined amount for the selling broker and this amount is disclosed in the listing information online through the multiple-listing service that we use. Some brokers require a buyer’s agency agreement that spells out what they require to get paid so make sure if you sign one you understand what your obligation is up front.
Well now you have it, as you can see it is most likely not going to only cost you $500 to buy a home. So be prepared and equipped to make educated decisions and enjoy your home!