Saving for a down payment and getting preapproved for a mortgage are major financial milestones in the home-buying process. But there are more money-related matters to be aware of during the journey to home ownership.
Prepare yourself by budgeting for the other charges associated with buying a home.
(Costs may vary by state or region.)
Good faith deposit. Also known as “earnest money,” this is a deposit you’ll make to prove your intent to buy the home. When you purchase the home, the funds are then applied toward the down payment. Though most homebuyers are aware of this payment, what surprises them is that “their check does get cashed right away,” says Tyler Osby, branch manager and certified mortgage planner at The Tyler Osby Team at Fairway Independent Mortgage in Urbandale, Iowa.
Approximate cost: 1 percent of the property’s sale price or $1,000
Home inspection. You’ll learn a lot about the condition of the home you’re about to buy with this thorough examination. “An independent third-party source gives you an honest opinion of what needs to be done to the property so that it’s safe to live in,” he says. According to Osby, many people elect to skip this step to save money, because they think they’ll spot problems with a naked eye—a decision that can come back to bite them. “A home inspection can help you avoid costly surprises later,” he says. To play it safe, you also may want to consider a termite inspection and radon inspection. This list of certified home inspectors can help you find a reputable resource near you.
Approximate cost: Upwards of $300
Down payment. The amount you’ll need for your down payment will vary depending on the size of home, its location and the type of mortgage you seek. Government loans, such as FHA or VA mortgages, have very low down payment requirements, though you’ll pay an upfront mortgage insurance premium. Conventional fixed-rate loans may require from 5 to 15 percent or more for the down payment. Discuss your options with your lender.
Approximate cost: 3 to 20 percent of your purchase price
Closing costs. Fixed closing costs cover the fees of third-party vendors involved in the home sale. According to Osby, they include, but are not limited to:
- Property appraisal: Lenders require you to have a professional property appraisal done so they can determine how much money to loan you. The appraiser estimates the value of the property you’re planning to buy.
- Credit check fee
- Flood certification fee
- Underwriting fee
- Attorney’s fee
- Title insurance
- Title search fee
- Origination fee
- Recording fee
- Application fee (some, but not all, lenders charge this)
Approximate costs: 2 to 5 percent of the purchase price
You also need to know when you’re expected to make these payments. Osby offers this general timeline:
- Good-faith deposit: When you make an offer.
- Home inspection: Within 10 days of making an offer.
- Down payment: Once your offer is accepted and you’re ready to move forward.
- Closing costs: When you’re ready to finalize the transaction.
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