A budget is an essential component of purchasing a home. Before you assume that the listing price is the only number you have to worry about, you need to know the hidden costs of purchasing a home. When you begin your house hunt, you want to ensure that you have money set aside to cover these additional costs, which include your down payment and closing costs/prepaids.
Earnest Money
Think of earnest money almost like a deposit. When you place an offer on a house, you have to provide earnest money to show the homeowner that you are serious about the purchase. The amount is usually about 1 to 2 percent of the purchase price and will be applied towards your down payment/closing costs at closing.
Appraisal
Before your mortgage lender signs off on your loan, they will want to know if the home you are purchasing is worth the price tag. An appraisal conducted by a neutral, third-party appraiser will estimate the value of the property. A buyer pays for the appraisal, which is typically a few hundred dollars.
Inspection
An inspection ensures that you know what kind of home you are purchasing. A professional home inspector will evaluate the home’s foundation, interior, exterior, grounds, and other areas for possible problems. This will enable you, the buyer, to determine if the home has costly problems that need to be addressed. An inspection will cost you about $300 to $500, but it could save you thousands of dollars in the future.
Title Insurance
As a homebuyer, you will need to purchase title insurance, with the most common being lender’s title insurance. This provides protection for the lender against any past claims to a property’s title. Common claims include back taxes and property liens. Unlike other kinds of insurance, title insurance is a one-time cost ranging from $300 to $1,000, based on your purchase price.
Homeowner’s Insurance
Before you move into your new home, you will need to purchase homeowner’s insurance. Not only will this insurance offer protection in case of a disaster, but will provide a safety net for other incidents including liability coverage if someone is hurt on your property. Your lender will also require you to purchase and prove that you have homeowner’s insurance so that their investment is protected. Depending on your policy and coverage this is a wide range.
It is time to sign the papers and collect the keys to your new home—and to write a check for these fees. These fees are called closing costs and are typically paid when you officially close on a home. Closing costs can be used as a bargaining chip when drafting a contract, with either the buyer or the seller covering the costs. However in this current market, with limited inventory, and in a multiple offer situation it strengthens your offer to pay your own closing costs. When you pay the closing costs, you can either roll the amount into your home loan or provide a check at closing with your down payment.
There is no one better to walk you through the cost of purchasing a home than a Realtor. I am here to lend my expert knowledge to assist you.
If you ever have any questions about the ever-changing marketplace or know someone looking to buy or sell, please do not hesitate to reach out!