It’s very likely that one of the largest expenses you will ever make is purchasing a home and budgeting for this venture is a definite must. Most borrowers will either be saving for a 5% down payment on a conventional loan or 3.5% for an FHA loan. However, there are additional expenses that buyers need to be aware of regardless of the loan type. Here is a chronological look at what you might expect and when it would come into play during the transaction.
Earnest Money 1st Deposit – this can range from $500 to $5,000 depending on the purchase price of the property and is due at the time an offer is submitted: The first expense on any transaction is in the form of Earnest Money. This is proof to the seller that you are a serious, committed buyer. It is withdrawn from your account, held in an escrow account with the listing agent and applied towards your down payment and/or funds to close. Typically, a 2nd deposit is due after all required inspections are complete and this is usually much larger than the 1st deposit.
Home Inspection - $400 - $600 Single Family or Condo. 7-14 days into the transaction: Talk about money well spent! The information provided by this inspection can be vital to the transaction. This can change depending on the size, age and location of the property. Make sure you attend the home inspection; you’ll learn a lot about the property you will potentially buy.
Re-Inspection - $125 - $150 3-6 weeks into the transaction: You can elect for this expense if you would like your inspector of choice to ensure that agreed repairs have been done correctly. This fee can be paid at closing
Appraisal - $800 - $1,000. 1-2 weeks into the transaction: This is a buyer’s expense paid directly to the appraiser at the time the appraisal is done.
Closing Costs – 4% - 5% of the purchase price due at the time of the closing. Closing Costs refer to the total of all Recording Fees, Title Fees, Lender Fees, Prepaid Taxes, Pre-paid insurance and Loan Points. These vary based on the time of year the home is sold, the property taxes on that home, the type of loan, and lender specific fees. Once the property and offer price are determined, the lender should be able to give you a rough estimate on these expenses. Buyers should also keep in mind that they can ask the seller for a contribution towards these costs. The loan product may limit the amount of closing costs a Seller can contribute but if you make a full price offer and are short on cash the Seller may consider this option.
Other Possible Costs. Unknown: Depending on the type of property in reference there may be some additional fees incurred. Typically, these are seen on foreclosures, short-sales and distressed properties being sold as-is. These situations must be evaluated on a case by case basis. Some of the typical fees we may see here are an as-built survey, well and septic testing, de-winterization, pressure tests, egress windows, fuel prorations and HVAC inspections.
You should always begin the homebuying process with a knowledgeable lender who will give you better estimates of expenses based on your personal situation.