From the time you start dreaming about home ownership to the moment you put the key into the lock of your new home is different for each and every buyer. A lot can happen in that time span, and a lot can go wrong. Buying a home takes a lot of research, time and a lot of footwork for everyone involved. From choosing the right Realtor for you to locking in the best interest rate possible, it is all a puzzle that will need to be put together, without missing any pieces.
Don’t assume you are able to buy a home just because you have saved the down payment. There will be other expenses related to purchase of the home of your dreams that you will need to anticipate. Make sure your budget is big enough to handle these expenses.
- Home Inspection Costs – If you uncover hidden structural, mechanical or other issues, you can negotiate the repair terms with the seller before you finalize the deal. Otherwise, you will be solely responsible for any problems and the cost of fixing them.
- Appraisal Fees – Your mortgage lender wants to be sure the home it’s about to loan you thousands of dollars to buy is worth what you have offered. That is why you need a home appraisal before finalizing a mortgage loan agreement. Appraisal fees can vary by state and the size of the home, but on average they run $250 to $650 or more. This fee is an upfront charge to the borrower by the lender.
- Escrow Accounts – You will find that some lenders may require you to set up an escrow account with your mortgage loan agreement. The money that is deposited into this account is used by the lender to pay on-going property related expenses on your behalf. These may include a variety of expenses including homeowner’s insurance premiums, property taxes and private mortgage insurance. Escrow accounts are usually mandatory for buyers who have a down payment of less than 20% and other types of loans, including an FHA loan.
- Closing Costs – anticipate of up to an additional 5% of the home purchase price to cover so-called closing costs. These fees can include everything from loan origination fees to attorney fees, homeowner association fees and taxes.
Additional expenses can also come up throughout the home-buying process. Some of these expenses are upfront, out-of-pocket costs that are nonrefundable, even if you purchase the property. Others will hit your wallet after the home is in your possession such as changing the locks, moving expenses, home improvements that need to be made before you move in and more. Buyers who have previously owned homes are probably are familiar with these costs, but first-time buyers can be caught totally off-guard.
First rule of thumb when purchasing a home, make sure you are choosing a home that is priced a bit lower than your maximum loan approval amount so you can ensure you will have enough to cover any extras that may pop up along the buying process.