Shopping for a house, especially in this market, can leave you exhausted and broken, especially if that dream house is proving difficult to find in your price range. Even though we will eventually get you into the right home, you may also find yourself cutting it close on cash if you don’t prepare properly financially. So here is you pre-purchase check.
What It Costs to Close
For sellers, closing is a fairly simple process, and most of the time, they walk away with a check in hand. For buyers, closing can be one of the largest expenses of their lives. We all know buying can be pricey, and it’s an easier pill to swallow if you are ready for everything that will go into the transaction. There’s also more to pay for with your new home than just the down payment. If you’re like most borrowers, to cover additional expenses at the closing table, you can expect to add an additional three to six percent of the chunk you’ve saved.
These costs include (but are not limited to):
- Real estate related expenses – Your lender should have already disclosed the fees they collect in order to actually do the work of creating your home loan, but there are other fees related to your loan that may or may not have been covered. These include potential lender requirements like appraisals and home inspections, as well as any repairs you’ve chosen to pay for at closing.
- Loan related fees – If you haven’t talked to a lender yet, you may be surprised at some of the fees that are charged to take your loan from a little dream to a big investment in your future. An application fee is generally required to begin the process, as it covers the costs of things like your credit report and the initial loan processing. Other fees include prepaid interest (that accumulates between closing day and the day of your first mortgage payment), loan origination fees, discount points, and mortgage broker fees. These can really add up.
- Prepaid Escrow Expenses – Because items like your taxes and homeowner’s insurance are generally paid out of an escrow account, you’ll have to put some money into it at the get-go to kick things off. The actual initial deposits will depend on where you live, but count on at least a couple of months if not a full year of each being collected to establish that account. If you have mortgage insurance, the same would also apply.
- Title-related fees – Although it would be wonderful to live in a world where you could trust the seller was absolutely, without questions, capable of guaranteeing you could buy and own their home without complications, sadly that world doesn’t exist. But that’s what title searches and title insurance do. These different fees pay to ensure that you will be able to buy a house without anyone else having a legal claim to it later, which would complicate your ownership considerably. Before a bank will loan you money, they want to know that the home has a clear title, Title searches track all the people who have owned the property before, and title insurance protects against any problems that might have accumulated on the title over time.
If you have any other questions about lenders, title companies or what it could actually cost you to buy, we are here to help. We have many resources for you to help you into a home in your specific situation so you can get on track to being financially ready for your next home.