Home Buyer Expenses, What to Expect
Buying a house is a huge milestone, and if you’re a first-time home buyer, it can be pretty intimidating. In most cases if you haven’t done some research upfront, you won’t know where to start or the process can seem like a maze of paperwork and fees, with no end in sight. Getting clear on costs, credit and what you can afford at the outset can make things a lot simpler.
So, what does buying a house actually cost?
Well, it’s easy to just look online and assume that buying that house with the great open-beam ceilings and redwood deck will cost just what the listing says. Of course, there’s more to it than that.
Buying a home involves two types of costs: One-time costs that are generally paid up-front, and ongoing costs that you should plan for over time.
Your up-front costs will include things like earnest money, your down payment, home inspection fees, and closing costs for your sale. Let’s start with these as they take some first-time home buyers by surprise: Earnest Money and Closing Costs.
Earnest money is paid by a buyer when an offer is made, and usually comes out to about 1 – 5% of the purchase price of the home. The money is held in escrow while the offer is in negotiation, and if an offer is accepted, the earnest money is applied toward down payment. Earnest money is refunded if a purchase negotiation fails, or an inspection falls through. It can be forfeited, however, if the buyer retracts the offer or defaults on an agreement.
A Down Payment for a purchase, which includes earnest money, is used to secure a home loan and establish ownership. The majority of lenders require at least 3.5% of the sale price as a down payment: A house selling for $340,000, for example, would require a down payment of at least $11,900.
A Professional Inspection After a buyer and seller agree on the terms of a sale, it’s time to get the property inspected. Having a home inspection prior to purchase is like taking a used car to your mechanic before you buy it: It can provide you with great peace of mind, and catch any needed repairs—major or minor—before you seal the deal. Inspections can vary but average from $400-450.
Closing Costs are the last of the one-time expenses associated with the home buying process. Average closing costs range from 2.5 – 3% of the total loan amount. Closing Costs are NOT your down payment! Closing costs for a buyer consist of lender fees, 1 year’s prepaid homeowners insurance, pre-paid interest, etc.
We offer a very unique loan option through Keller Mortgage, as the top selling office in our area we have a no lender fee loan available! This will save you THOUSANDS on closing costs. Average savings on a $350,000 loan is $7800!
Buyers sometimes ask sellers to pay part or all of the closing costs as part of the negotiation of the terms of the sale.
The ongoing cost that impacts a buyer the most is also the most consistent and predictable: the mortgage payment. It’s pretty easy to plan for each month, but it’s also usually going to be the largest cash outlay each month.
So, what’s in a mortgage payment?
Most mortgage payments include principal (the balance of the amount owed), interest (the rate charged on the loan amount), property taxes, and homeowners insurance. If the down payment was less than 20%, the lender will also require private mortgage insurance (PMI) to protect them in case of default.
Another thing to consider when thinking about monthly home ownership expenses are home owner’s association (HOA) fees. Many condominium complexes, gated communities, and certain housing developments charge HOA fees to cover shared maintenance, recreational facilities, and landscaping, among other things. They may be payable monthly or annually, and can vary widely in cost, so make sure you are clear on the amount of an HOA fee before you buy.
Even though they don’t occur monthly, you should also prepare for home maintenance costs that will arise over time. Plan to set aside a bit of cash each month to save up for fixes like water heaters, windows, gutter maintenance, roof repair or replacement, and the like. When some unexpected maintenance issue comes up, you’ll be glad you did!