Are You Really Prepared for the Cost of Buying a Home?
In a fast moving and ever-changing real estate market, buyers wrestle with wanting to make a home purchase happen but have you asked if yourself if you are really prepared for the cost of buying a home?
I’d hate to see you fail, I really would.
It happens; you find a house that meets all or most all your requirements and you’ve actually spoken to a lender and a pre-approved for a home loan, let’s say $250,000 and the listing is also $250,000.
Let’s also say, hypothetically, you get an accepted offer at $240,000 and you jump for joy – but then one by one, expenses start to pop up and you begin to worry if the cost of buying a home is going to be too great.
Planning now, and more broadly with your buyer’s agent (you do know not to call the number on the sign in the yard, right?) who’s job is to save you money for all the other expenses you should be prepared for.
Here’s a handy-dandy list of things you’re going to want to consider to help you plan for the cost of buying a home more accurately.
1 – Earnest Money. A good faith sum held by the buyer agent’s brokerage in escrow that lets the seller know the seriousness of your offer and given back at closing on the HUD-1 Settlement statement.
The amount of earnest money varies. Here in Ohio $500 is quite common, though some sellers ask for $1,000 while luxury home sellers may ask for more. Although not required, sellers do expect to see earnest money; again, to demonstrate the “earnestness” or “seriousness” of your offer.
2 – Home Inspection and other inspections. Many lenders require home inspections – let me just personally advise you, skipping home inspections even on a newly or just-built home is a bad idea. Home inspections are a few hundred dollars and varies, but can save you thousands in repairs down the road with hidden issues. This is a standard addition to the cost of buying a home.
In addition to a general home inspection, you may way to also consider a termite and a Radon inspection. Having all three types done will run you a few hundred dollars.
3 – Survey of the Property. Some lenders require a survey of the property detailing the boundaries and size of the property, and typically around the same cost of a home inspection. If you’re thinking of building a fence, for example, and unclear about where the property lined and point of encroachment are, it’s wise to have this done too.
4 – Taxes and Home Owner Insurance. Most buyers know they are going to have to pay taxes, but you should be aware you’re likely going to have to by prepaid at closing time. Most lenders require an escrow account, allowing the mortgage lender to pay the property taxes for you, however be extra aware you might be required to pay those taxes upfront. These two can be several hundred dollars, and more to much more for luxury properties.
5 - Appraisal (fingers crossed the property isn’t appraised for less than your offer.) The average cost of appraisal of recent past is around $450, but rest assured the average will likely go up some over the next few years. Home buyer tip: Don’t pay for an appraisal if the home inspection fails.
6 - Fees. Sad but true, doesn’t everything seem to have fees? Yes, fees have to be calculated into the cost of buying a home too. There are different types of fees and paid at different times, consult with your Realtor and lender about what to expect:
- Title Service and Lender’s Title Insurance.
- Mortgage lender origination fee.
- Government recording charges.
- Tax servicing fees.
7 - Private Mortgage Insurance. A premium charged by lenders and Federal law, this is an insurance premium against mortgage default for home loans with less than 20 percent down payment. There are, however, some mortgage lenders that can go much lower than 20 percent with no PMI.
A colleague of mine at another brokerage, Bill Gassett of Remax, Metrowest Massachusetts wrote an excellent article on How to Get Rid of Private Mortgage Insurance.
8 - Home Warranty. Definitely a worthwhile expense and even crucial for protecting your investment as a new home owner, home warranties can vary from a few hundred to upwards of a thousand depending what “bells and whistles” your policy includes. A few hundred would be more the average.
9 - Re-Key. You may end up paying a re-key fee if the home is a foreclosure or HUD home, and usually $150 bucks. These homes are re-keyed right before your closing. Non-negotiable, this usually covers one handset and sometimes two. You may have more doors to change the locks on too, so prepare for that.
10 – Closing Costs. Your lender and Realtor will let you know what you need to bring to the table for your closing costs, but be prepared to pay $2,500 - $5,000. The amounts can really vary from lender to lender and with what title company is utilized to complete the transaction. Your Realtor can check with your lender for a good, close estimate.
We excel at getting your closing costs covered.
11 – HOA. Some home buyers disdain the idea of an HOA but other buyers appreciate some of the perks of one. Some neighborhood’s HOA’s provide more and cost more, others could be significantly less, but generally a couple hundred a month. Have your Realtor do some homework for you.
12 – Appliances. If the seller isn’t offering appliance, or appliances you intend to replace once you occupy the home, you could spend under a $1,000 to several thousand for a complete set.
13 – Maintenance. Now, this particular expense is a crucial cost of buying a home and can really range low to high, but some things are a must if you intend on keeping your property’s health up and protecting your investment.
You really should have a few thousand rainy day dollars set aside for this at all times. Some home owners will keep an account specifically for this, adding to it annually. Research the cost of a new window to a new roof and you’ll understand.
In summary, it’s good for the average buyer in the average market to have several thousand set aside, beyond the down payment. Add to those savings as often as you can and ensure you aren’t without means to “spend to protect” your investment.
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