5 Upfront Costs When Buying A Home

Posted by Anna Varnell on Monday, August 22nd, 2022 at 12:28pm.

 

Buying a house is an exciting time in your life regardless of if you’re a first-time home buyer or purchasing your fifth house. There are a lot of things to consider when buying a home like location, how many bedrooms you need, if are you looking for more storage space, if a yard is important, etc. While purchasing a home is a process, we feel that it is important to understand the upfront costs as you begin the process to help eliminate any surprises. 

To start, it is important to understand these costs are going to be separate from your downpayment. For example, if you’re preapproved for $350,000 and plan to put down 10%, the total amount that you are paying is $35,000 (10% of your loan) plus the following costs. It is also important to note that these costs are paid before you purchase your home. This means you should make sure you are able to afford these costs before you begin your house search.

1. Earnest Money

First things first, earnest money is NOT a bribe to the seller! There can be a lot of misconceptions about what exactly earnest money is. Earnest money is a dollar amount that you put into an escrow account at the beginning of your contract to show that you are a serious and willing buyer. Your earnest money does not go into the seller’s pocket. It does go towards to amount you owe at closing. If for any reason your contract is terminated, how the contract is written will determine who receives the earnest money. Always discuss the possibilities with your real estate agent as each contract and state legalities will vary. There is no requirement on how much you need for earnest money. A general rule of thumb is 1% of the purchase price of the home.

2. Home Inspection

A home inspection is to help inform the buyer of the condition of the house they’re purchasing. This step is usually done after you’re under contract on a house and is recommended to be performed by a licensed professional. Their job is to inspect for any active issues and any structural or safety hazards with the property so that you can make an informed decision on purchasing a house. A home inspection is a service that you pay for that is not tied in with a loan. You will need to pay for the inspection at the time of the service. The amount will vary based on the size of the property and the company that you choose to work with. A home inspection will usually range from $400-$500 per inspection. It is also important to consider the possibility that you may not purchase the home you have inspected. If you and the seller cannot come to agreeable terms based on the inspection results and you end up terminating the contract, this means that you will need to pay for another home inspection in the event you go under contract on another property. 

3. Appraisal

An appraisal will most likely be required by your mortgage lender unless specifically stated otherwise. While the home inspection tells you about the condition of the house, the appraisal gives you the value of the property. This is to protect you and your lender to make sure that this is a good financial investment. A bank or lender does not want to lend you $350,000 to purchase a home that is only worth $300,000. With appraisals, it is best to have a little extra saved up to eliminate any surprises. In some cases, a reappraisal is required if the original appraisal required repairs to be done. We recommend saving up $500-$700 for an appraisal.

4. Additional Inspections

While the home inspection will give you a full report on the condition of the property, it is important to note that the inspectors are not structural engineers, plumbers, electricians, etc. In some cases, you may want an additional inspection done by someone in a specific field. Often this occurs if a buyer has a specific question or concern based on the initial home inspection report. Another type of inspection we do recommend is a termite inspection to ensure there are no active termite or pest infestations. A termite inspection can cost anywhere from $50 to $100 depending on the company. 

5. Closing Costs

Closing costs have definitely been at the top of conversations with buyers as these costs are negotiable and vary based on the current market. Movement Mortgage explains closing costs as “when you ‘close’ on a home, the title of the property you’re buying officially transfers from the seller to you, the buyer. This signals the end of what can sometimes be a nerve-racking process. The costs associated with closing on a home consist of fees accrued throughout the entire process.” These fees can include title search, origination fee, credit report fee, points, recording fees, paying local government offices for deed recording, attorney fees, and more. It is important to understand your current market when you start the home buying process and always discuss with your real estate agent what to expect when it comes to closing costs. In our current market, it is more common for buyers to pay closing costs. This can be confusing to experienced buyers who last purchased a home several years ago or even buyers moving into town from a different state as what is "normal" in one state may not be the same in another. While these costs, again, are negotiable, a competitive offer may mean offering to pay part or all closing costs associated with the transaction. While the amount will vary, it is best to prepare for 3-5% of the purchase price of the home. 


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