Keep in mind that when you set a budget for a home purchase that there will be additional costs above and beyond the list price. Oftentimes buyers forget about the costs of the purchase when they set their budget. The biggest one that you need to keep in mind is closing costs and prepaids. Closing costs will be $2500-$3000 and prepaids will run an additional $2000-$2500 depending on property taxes and homeowner’s insurance.
What exactly are closing costs? Closing costs are lender and third party fees associated with obtaining a mortgage loan. Prepaid costs are your one year homeowner’s insurance premium, escrow account set-up, and per-diem interest.
The majority of the closing costs are the responsibility of the buyer. Please keep in mind that a home loan is a major and very detailed process and one that involves many people and steps.
The lender will have fees that include an origination charge of approximately $1000, appraisal fee of $400-$550, and other fees including a credit report, flood certification, and tax service, totalling around $175. The buyer will also incur title coming charges, which includes recording fees, title search, and title insurance for about $950-$1100.
Where does the seller fit into all of this? FHA and VA loans require the seller to pay the Tax Service fee to guarantee that the property taxes get paid, and the VA adds termite inspection and well/septic inspection to the seller list, both of which could be costly if a problem is discovered. As a seller, you will pay an owner’s title insurance policy, which will change depending on the sale price of your home. The seller can pay a maximum closing cost for the buyer of 6% for an FHA loan, 4% on a VA, and either 3% or 6% on a conventional depending on the buyer’s down payment.
Sometimes when we hear closing costs, we think we don’t need the money until we are at the closing. This is not true. Before you start looking for a home, make sure that you have a chunk of money you can use as earnest money. This is not only you giving your word to the seller that you are serious about purchasing their house, but this money can also be used as a credit toward the down payment and closing costs. Your check will be cashed and put into the listing broker’s escrow account. The earnest amount is typically 1-2% of home price or higher in an aggressive market.
Jim Kenney, agent with the Anthony Team, says “he finds that buyers are usually trying to figure out how closing costs figure into negotiating an offer and the best timing to get the most out of that one chunk of money.” Don’t just check a box when choosing your real estate agent. Make sure that you choose a knowledgeable agent and that they are truly working in your best interest to help answer these questions and get the most out of your investment.
Location! Location! Location! Is a huge reason buyers choose a home. If that home happens to be in a neighborhood with an HOA, make sure you check out the fees ahead of time and find out if the fees will be transferred over to you or are they paid up for the year. What time of year are the dues billed and what do they include?
It all may seem like a lot and how can you keep track of everything? That is where the professionals come in. There are so many resources available between the real estate agent, title services and the mortgage lenders. They all want you to have success and make the process as seamless as possible and are well worth their fees.
“We cover all of these things in our Buyer Consultations” said Jim Anthony, 1st VP for F.C. Tucker Company. Jim says that during the Buyer Consultation he likes to discuss the responsibilities of home ownership, such as home insurance, home repairs and the need for reserves when those unexpected home surprises occur!
Keep in mind that this is what they do for a living and they can be a wealth of knowledge, especially for first time buyers. The best place to start is by calling one of the knowledgeable agents on the Anthony Team and they can take care of you 317-220-6002.