Costs Associated with Buying a Home
There are many costs associated with buying a home. Since a home purchase is probably going to be one of your biggest financial decisions, it’s good to be aware of these fees. Some fees are paid prior to closing, while others are paid at closing. Here are a few costs to keep in mind as you begin to budget.
Option Money and Earnest Money
Immediately after going under contract, you pay two fees: option money and earnest money. Earnest money is usually around 1% of the offer price and goes directly to the title company. This payment is for showing how serious you are about purchasing the property. Option money can vary but usually ranges around $200-$500. Option money provides you a certain number of days to get inspections done. You may terminate during the option period and get your earnest money back. If you terminate anytime during a contract, you automatically lose your option money. If you make it all the way to the closing table and purchase the property, both of these fees are credited back to you via contributing towards your closing costs.
This is a crucial step in the home buying process. The findings that come from the inspection can help you negotiate price and repairs. You can expect to pay around $500 to $800 for a general inspection, depending on the home size and inspection ‘ad-ons’ you order. If you choose to also have a foundation engineer evaluate the home, a pool inspector, septic inspection/pump, etc – these are additional charges outside of the general inspection. Inspections are paid upfront and paid directly to the inspector. You should always have an inspection, even on a brand new home!
Title services encompass the transfer of the title from the seller and a thorough search of the property’s records to ensure no one will pop up with a claim to the property. Additionally, you may need to buy title insurance which will protect the lender or your investment in the home. You pay these fees at closing.
If you’re applying for a loan, your lender will require you to get an appraisal of the home to determine its estimated market value. An appraisal on a typical residential home costs approximately $450-$600. This is usually paid at closing but sometimes prior.
Many communities have a homeowners’ association (HOA). HOAs manage the neighborhood’s general maintenance and updates to areas like community pools, playgrounds, and more. When buying a home associated with an HOA, you pay the management company some fees.
One of the fees is called a transfer fee, which usually costs around $100-$400. There is also a resale certificate. The resale certificate basically breaks down the financial health of the HOA. It discloses if any lawsuits are pending against the HOA, if there are any special assessments, etc. Costs for resale certificates range around $400-$800, depending on the management company. You usually pay for resale certificates upfront, but this also depends on the management company. Whether the buyer or the seller pay for the resale certificate is a negotiable item in the contract.
Lender fees can be quite confusing! There are usually different fees that add up. Speak to your lender about all of their fees, complete their loan application, and request a Loan Estimate to review their costs. Lender fees usually range from 0.5-1% of the total value of your mortgage. Don’t always just look at the interest rate a lender quotes; also look at the APR, Annual Percentage Rate. Shop lenders and get at least a couple of quotes before choosing a lender.
The property taxes each buyer pays at closing differ. Lenders require differing amounts, but it’s common to see anywhere from two months to nine months paid at closing into your escrow account.
Speaking of which, ask yourself if you want to escrow. Lenders usually charge a small monthly fee for managing your property tax payments and insurance. Your total mortgage payment includes this fee. If you decide not to escrow, your closing costs and monthly payments will be less, but you’ll need to budget for paying the full property tax bill at the end of each year.
Shop around and get quotes from different insurance companies. Decide what kind of coverage you want and need on your home. Lenders will require you to have this in place by the time you get to the closing table. When getting insurance quotes, also ask how much your deductible would be.
Don’t forget to budget expenses for moving your furniture! Whether you’re hiring someone or renting a truck and doing it yourself, account for these moving expenses.
Utility companies sometimes require deposits when opening a new account with them. These deposits can usually range from $75-$150. Take this expense into account too, when you’re planning your move.
The Largest of Costs Associated with Buying a Home: The Down Payment
And don’t forget the largest of costs associated with buying a home – the down payment! You probably already know to save up for this. Down payments start at 3% and usually go up to 20%, although you may always put down more.
Real Estate Agents
Agents are usually free to buyers!! So why wouldn’t you want an agent representing you during probably the largest financial purchase you’ll ever make?!? Choose an agent with experience, who knows how to navigate through contracts and avoid potential pitfalls. Experience matters!
Also be aware that you want to use an agent when buying a brand new home too! The builder has a sales agent that represents them. Why wouldn’t you want an agent representing you as the buyer, working on getting you the lowest price possible and best terms possible for your new home?
Here at Baker Realty, we have experienced agents that are ready to help you find your dream home. We educate and guide you through contracts, to help you determine the best option for you. Don’t wait another minute. Contact us right now!