Understanding the costs of buying your first home is something you need to do before you begin the home search process. If you fully understand all of the costs ahead of time, then you will avoid disappointment. We have put together a list breaking down the costs of buying your first home.
THE DOWN PAYMENT WILL MOST LIKELY BE THE LARGEST EXPENSE
If you qualify for an FHA loan, you will only need 3.5% of the purchase price as the down payment. However, if you need to, or choose to, obtain a traditional mortgage your down payment could be as high as 20%. A mortgage broker can help with this issue.
When you decide to make an offer on a home, you will be required to make an earnest money deposit which is held in escrow. Earnest money tells the seller that your offer is sincere. This money is held by an independent third party. They are refundable if you have a legal reason to back out of the contract. For example, the home inspection reveals serious defects, or the appraisal is too low compared to the agreed price. Otherwise, the earnest money deposit goes toward your down payment.
THE HOME INSPECTION
A home inspection is one of the most important steps in buying a home. You may believe that the home is in perfect condition, but it may not be. The expense of hiring a home inspector should never be viewed as an unnecessary expense. Don’t cut corners here. A quality home inspection performed by a highly qualified inspector may cost about $300 to $500. Do your homework before hiring an inspector, because you want an inspector who is highly trained and very skilled.
THE ALL IMPORTANT APPRAISAL
You cannot avoid having the property appraised by a professional appraiser who will decide the value of the home. Their decision may be what you agreed to pay or it may be less. Occasionally, it is more. However, if the appraisal comes in at less than what you agreed to pay for the home, then you have only one recourse, and that is to put more money down. Of course, your realtor may be able to renogotiate the price.
Your realtor or mortgage broker can give you a good estimate, but it can only be an estimate. The final number is usually available a day before closing. The closing costs can be between $5,000 and $12,000 depending on the taxes, insurance, mortgage fees and other charges which are difficult to estimate ahead of closing.