Last month we shared all the costs that home owners should be prepared for when selling a home. This month we are looking at all the expenses for which you should be prepared when buying a house, beyond just the purchase price of the home.
Wouldn’t it be nice if you knew ALL the costs of buying a home before you bought the home? If you’re a first-time homebuyer, or last purchased many moons ago, this list is for you!
You put an offer on a home, and it got accepted. Hooray! When you put an offer on a home, you will be expected to pay some sort of earnest money, so that you have “skin in the game”. This earnest money typically ranges from $500 to $2,000 and is dependent on the purchase price as well as the market. When the market is a competitive seller’s market, the earnest money goes up. This amount will be deposited in a trust account held by the seller’s real estate brokerage, and will be credited towards your cash to close. It is refundable in certain circumstances.
Next, inspections will be your next expense. Yes, there may be more than one inspection. At a minimum, you’ll want a general home inspection (even for new construction). You may also choose to add a radon test, sewer inspection, or other specialized inspections. Typical costs of inspections:
- General inspection: $200-350
- Radon test: $100-150
- Sewer inspection: $150-200
All of these can add up to several hundred dollars, but that’s a small price to pay to make sure you are buying a solid home. If the house has significant issues, you may be able to negotiate repairs with the seller. Additionally, if the house has upcoming maintenance, the inspections will help you plan for the future expense.
Take the time to select great inspectors, who will both inspect the house and explain the implications of anything they find. And, keep in mind that a great inspector will tell you everything about the house; this does not mean that you must or should request that the seller handle every item. Some items will be small ongoing maintenance items like caulking or changing air filters.
If possible, be present during the inspection(s), so you can ask questions and take in all that the inspector finds. You will receive a lengthy report from the inspector, and you can keep this as a reference to your house.
Need one or more inspectors? You can check out my list here: http://www.homeswithnora.com/home-inspectors/.
Cash to Close
After your offer is accepted, your lender will crunch some numbers and provide a Loan Estimate, which is list of your costs to complete the purchase of your home. This will include closing costs, prepaids, and your down payment.
Closing Costs:These are lender fees, appraisal fees, and title/attorney fees.
- Lender fees: This is a large group of fees that will vary from lender to lender. Some of the fees in this bucket are origination fees, credit reporting, wire transfer, and other administrative fees.
- Appraisal fees: This is the cost for the lender to hire an appraiser to confirm that the property is worth at least the sale price.Appraisals can run from about $400-600. By the way, some lenders will charge you for the appraisal before closing.
- Title/attorney fees: These include government filing fees, escrow fees, notary fees, and any other expenses associated with transferring the deed over to you.
Prepaids:This category includes items that you will need to “pre-pay”: property taxes, homeowners insurance, and interest.
- Interest: You will need to pay the interest on the mortgage from the date of your closing to the first of the following month.
- Property Taxes: This will vary depending on the tax assessment of the home you are buying. You may need to deposit some portion of the property taxes into an escrow account so that the lender can pay the property taxes on your behalf when they are due.
- Homeowners Insurance: This will vary depending on the homeowners insurance coverage you elect. You will need to pay for a full year of homeowners insurance at closing.
Down Payment:This is an amount you’ve probably already discussed with your lender when you were first pre-approved. It will be a percentage of the overall purchase price of the house, usually ranging from 3% of the purchase price or higher (though loans are available with no down payments).
Maintenance and Repairs
When you rent, your landlord pays for maintenance and repairs that are required, such as mechanicals, roof, and windows. However, as a homeowner, you will need to pay for these items yourself.
In general, you should plan to spend approximately 1%-3% of the home’s value per year on maintenance and repairs. Some years, you may not spend anywhere near that amount, and some years, you may have a much larger expense. But, if you budget appropriately, you should be able to cover required repairs as needed. Also, keep in mind that you want to fix small issues before they become big issues!
What Money Do I Owe When?
|Timing in the Buying Process||For What||Approx Amount||Paying to Whom||Factors|
|When you make an offer on a house||Earnest Money||500-2000||Listing Agent’s Company
|1-3 weeks after your offer||Inspections||$300-600||Payable directly to the inspectors||How many inspections are needed: ie: Whole house, termite, Radon, Plumbing, Electrical|
|3-4 weeks before Closing (or closing day)||Appraisal||$450-600||Lender||Negotiated in by the seller – Discuss when making the offer
|Closing Day||Down Payment||Dependent on your situation||Lender||The more you put down, lessen your payment, If you bring $ from another home sale or from savings|
|Closing Day||Closing Cost||Dependent on your situation
|Settlement company||Closing costs, prepaids|