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What are the hidden costs of buying a home?
The answer is none if you’re working with people who are above board and professional. I know that’s a really bold statement to make but it’s true. there should never be any additional hidden costs when you’re purchasing a home and everything should be laid out in front of you. Can pricing or costs to change a bit? Absolutely especially with closing costs because until the loan has almost been completed, there are subtle changes to the amount of escrow that the lender wants and other small fees. But none should be a surprise.
There are several costs in purchasing a home and one of the biggest is the interest rate versus what the current price of the home is. I will argue that the interest rate has a much bigger impact on the buyer than the price of the home. the better the interest rate, the more home you can purchase for lower cost. There’s been a belief over the last six months that you marry the home add date the interest rate. Meaning you purchase the home because you love it and you refinance later when the rate hopefully comes down.
Looking at traditional costs here are a list and what they are-
Earnest money- it’s something of value that you give to the seller when you write an offer. It shows intent to move forward with the process and purchase the house. Typically, it is about 1% of whatever the sales price is of the home. this is not a gift to the sellers, it is the credit to you at closing. When you bring your down payment, it will be that total minus whatever your earnest check is. That money goes into a broker’s trust account and is distributed on day of closing.
Down payment- this is the amount of money that you put down at closing towards the purchase of your house. The remaining balance is your loan from the bank. There are a lot of different types of loan programs some of them offering 100% financing where you bring nothing to The closing table. All the way to 20% down or more. These are the types of answers you will get when you start the process of buying a home from not only your loan officer but your real estate agent as well.
Closing costs- your loan officer will be the one who will tell you exactly what that amount will be but you can figure it somewhere between 2 1/2% and 3% of whatever the sales price is. Sometimes you can ask this seller to pay them, other times you would bring that along with your down payment at closing. The difference has a lot to do with the amount of escrow money that the bank wants you to put into savings to establish your loan.
Inspection- Having a home inspection is one of the cheapest forms of insurance you can purchase. Typically, right now it’s running about $500 for a traditional single-family home. Not only will give you the Peace of Mind that you’re purchasing the home in the condition you believe it’s in, it also gets you an opportunity to get out of the contract if you find that the house has some major problems. This is a check that you will write out to the inspector directly on the day of the inspection.
Appraisal- this is a function that the bank does by hiring an independent appraiser to check the value of the house. This is another stopgap to make sure that you’re not purchasing a home that’s not worth the value. It’s running about $550 and sometimes you have to pay that by check to the loan officer and other times you can roll it into your closing costs. It really depends on the lender and what they want you to do.
Home insurance- this only applies if you are purchasing a single family home that does not have an HOA or association. You’re required to purchase one year worth of home insurance by the day of closing to cover you for the following year. The first payment you make when you move into the house will hold 1/12th of the total of insurance cost for the following year. That escrow account will pay the insurance company out of the savings in your escrow twice a year.
Anything other than this list of fees should be disclosed to you along with all of these when you first sit down with your real estate agent and your loan officer. There should be no last minute switching of interest rates, increased payment or any of that other nonsense. This goes back to who you work with period make sure you get a professional team to represent you in the purchase of a house. By sitting down and having conversations about all the fees and the process of buying a home, you will be better qualified and a better home buyer.
