You Need More Money Than Just Your Down Payment
When it comes time to buy a home, most buyers know they need money for a down payment but often forget about what is called “Closing Costs”, which is actually short for “Closing Costs and Prepaid items”. These are expenses associated with purchasing a home that a buyer will incur IN ADDITION TO their down payment that they will need to be prepared for. The Rule of Thumb is to expect to pay about 2%-3% of the total purchase price of the home in closing costs and prepaid items.
DISCLAIMER - Every real estate transaction is different. The following figures are just ESTIMATES to give you an idea of how much money you will need to buy a house beyond your down payment. They can change drastically due to variations in property taxes and such but between myself and your lender, once you’ve picked out a home and spoken to a lender about your options, we can give you a more accurate estimate.
ADDITIONALLY, there are MANY GRANT PROGRAMS available where you may find you need little to NO MONEY OUT OF POCKET to buy a home! Both myself and your lender can show you what opportunities might be available to you!
Earnest Money – It is standard practice in our area to provide earnest money upon contract acceptance. This is money that will be held in an escrow account that is used toward your down payment. It serves as a promise from buyer that they intend to move forward in good faith. The amount of earnest money you will need is negotiable and typically relative to the cost of the house, meaning, the higher the price, the more earnest money is often expected.
Home Inspection – Home inspections are not mandatory but highly recommended. The only opportunity you will have to conduct one to determine if you want to move forward is during the home inspection period outlined in the contract. Home inspectors typically expect payment at the time of service. Home inspection fees are not typically refundable. A typical inspection costs around $400.
Homeowner’s Insurance – Your lender will typically require that you pay 12 months of your insurance premium before the closing and provide a receipt. In some cases, the lender will just let you pay that at the closing table along with your other fees that day.
Attorney Fees – In this area, most buyers and sellers are represented by an attorney during the sale. Attorney’s fees typically cost around $450 and are payable at the closing table.
Appraisal Fees – Once you are under contract, have completed your home inspection, and are ready to move forward, your lender will order the appraisal. They will often ask for you to pay for that at the time they order it. Normal appraisal costs are about $400.
Title Fees – When you purchase a house, a search will be done to look at chain of title to be certain you are buying a home clear of any liens or clouds on title. Also, the title company will issue title insurance that insures you against any future claims. This is a fee often shared with the seller. The seller’s attorney typically chooses the company and fees vary based on the cost of the home. Your lender can give you a good estimate of what they expect. These are payable at the closing table.
Lender Fees – These vary by lender and often include many line items such as recording fees and credit checks.
Prepaid Property Taxes – If you are using a mortgage to purchase this home, most lenders will require you to place a certain number of months’ worth of property taxes in an escrow account for future payment. This varies from one lender to the next so check with your lender on their requirements. These are payable at the closing table.
Keep in mind, there are occasions when we can negotiate for the seller to pay for some of these items, also referred to as “Closing Cost Credits” or “Seller Concessions”. However, we are in a very tight housing market right now, specifically, a seller’s market, meaning, there are more buyers shopping for homes than there are sellers selling their homes. This creates a situation where the seller often has the upper hand in negotiations and very often have multiple offers at the same time on the house which is not an optimal situation for asking for the seller to pay for your costs.