Buying a home is the mark of an important milestone in your life. While you’re very excited, you need to be prepared for all of the costs that are associated with buying a home. There are a few different costs that go into buying a home that are often overlooked. Before you dive into the home buying process, you’ll want to be prepared.
The Closing Costs
Many homebuyers have gone smoothly through the process of buying a home until they get to the closing table. They suddenly realize that they need a bit more cash than they anticipated. You probably were more than prepared with your down payment, but there’s other costs that are associated with buying a home. Some costs that you should be prepared for include:
- The home appraisal
- Attorney’s fees
- lender’s fees
- Underwriting fee
- Processing fees
- Inspection fees
You’ll receive a disclosure up front to help you understand all of the charges and cash that you must present when your signing the final documents for the purchase of the house. Keep in mind that many of these fees can be negotiable.
Decorating Your New Home
Once you move into a new home, you’re going to want to decorate the space. You may need a some new furniture. Perhaps you own no furniture and need to furnish the entire house. You’ll want to budget for this. The good news is that there are plenty of ways to fill up your home with items that won’t break the bank yet look good in the home. Places that you can shop include online sources like Craigslist or Facebook Marketplace. You can even check out local second hand stores for some great deals on furniture and decor that is in good condition. The important thing is that you understand how much you’ll need to buy as you move into the home.
Escrow Accounts
The escrow account typically holds the insurance and taxes for the home. Funds are withdrawn as premiums and payments are due. Not every lender has these set up, but you should be prepared to have the money up front for the home insurance and even the taxes at the closing table.
Improvements Around The Home
There will be plenty of things that you’ll want to do around your new home to spruce up the place and make it your own. From planting bushes in the front to flower gardens outside to fresh coats of paint, you’ll quickly discover how expensive it is to be a homeowner.
If you’re preparing to buy a home, now you understand why saving is so important! Investigate all the costs that you’ll need to pay up front while you’re in the midst of buying a home to avoid any surprises.
Buying a home is a big financial endeavor that takes planning and saving. Aside from a down payment, hopeful homeowners will also need to save for closing costs and moving expenses.
When it comes to the down payment amount you’ll need to save, many of us have often heard 20%, the magic number. However, there are a number of different types of mortgages that have different down payment requirements.
To complicate matters, mortgages vary somewhat between lenders and can change over time, with the ebb and flow of the housing market.
So, the best way to approach the process of saving for a down payment is to think about your needs in a home, and reach out to lenders to start comparing rates.
However, there are a few constants when it comes to down payments that are worth considering when shopping for a mortgage.
In today’s post, we’re going to talk about some characteristics of down payments, discuss where the 20% number comes from, and give you some tips on finding the best mortgage for you.
Do I need 20% saved for a down payment?
With the median home prices in America sitting around $200,000 and many areas averaging much higher, it may seem like 20% is an unattainable savings goal.
The good news is that many Americans hoping to buy their first home have several options that don’t involve savings $40,000 or more.
So, where does that number come from?
Most mortgage lenders will want to be sure that lending to would be a smart investment. In other words, they want to know that they’ll earn back the amount they lend you plus interest. They determine how risky it is to lend to you by considering a number of factors.
First and foremost is your credit score. Lenders want to see that you’re paying your bills on time and aren’t overwhelmed by debt. Second, they will ask you for verification of your income to determine how much you can realistically hope to pay each month. And, finally, they’ll consider the amount you’re putting down.
If you have less than 20% of the mortgage amount saved for your down payment, you’ll have to pay for private mortgage insurance (PMI). This is an extra fee must be paid in addition to your interest each month.
First-time buyers rarely put 20% or more down
Thanks to FHA loans guaranteed by the federal government, as well as other loan assistance programs like USDA loans and mortgages insured by the Department of Veterans Affairs, buying a home is usually within reach even if you don’t have several thousands saved.
On average, first-time buyers put closer to 6% down on their mortgage. However, they will have to pay PMI until they’ve paid off 20% of their home.
So, if you’re hoping to buy a home in the near future, saving should be a priority. But, don’t worry too much if you don’t think you can save the full 20% in advance.
When you put your home up for sale, it can be an emotional time. You need to say goodbye to a place where you have lived for at least a small portion of your life. You created memories in that home, and now, it’s the job of a new family to make new memories.
Once the home is well on its way to being sold, there will be an appraisal of the property. It’s scary as a seller to think that the appraisal has the ability to actually halt the entire sale of the home. It can be a confusing process, to say the least, to have your home appraised. You have determined your listing price and received an offer on the home already. It seems like backtracking to value the home after this part of the sale process is complete.
The Appraisal Removes The Tension
The appraisal is one of the factors that bridges the worlds of the buyer and the seller. As a seller, the things that you think add value to your home may not be all you have hoped them to be. As a buyer, you want to be sure that you’re paying a fair price for the home. Below, you’ll find some common myths about home appraisals and the truth about them.
The Appraisal Is Not The Same As An Inspection
The home inspection is used as a tool to protect the buyer. Although the appraisal is used as a protection for the buyer, the two are separate entities. The inspector looks at everything in the home that can be a problem including leaks, cracks, and faulty electrical systems. The home appraiser is simply meant to find the objective market and the estimated value of the home in that market.
The Appraisal Isn’t How Much The Buyer Will Pay
While the appraisal gives a good estimate of the value of a home, it doesn’t take every single factor into account. It’s one version of how much the home should be priced at. What the appraisal does affect is the contract on the home.
If the appraisal doesn’t match the contract price, let’s say that the home is appraised lower than what you’re paying for it, the lender will not make up the difference. It can become a discussion between the buyer and the seller to see who will pay for the additional uncovered cost of the home. The buyer can pay the difference themselves. The seller may decide to cover the difference themselves. Either way, this is where the home buying process can get kind of messy.
Bigger Homes Don’t Necessarily Appraise For More Money
Just because a home is bigger, doesn’t mean that it’s worth more than the smaller home next door. A larger home could have issues with age such as an older roof, or less complex fixtures. If a smaller home is more updated, it very well could appraise for more. Don’t count on the square footage to dictate the appraisal price of a home.
Since there are so many things to keep in mind when searching for the right home, it can be very helpful to create a priority list. If you're at the beginning of the house-hunting process, one of the best ways to clarify your thoughts is by organizing them in a notebook or on a computer screen.
As is the case with creating any kind of plan, you need to start with the basics and then branch out from there. While a house-hunting plan can and should change as you proceed forward, once you start visiting listings, your insights will begin to deepen. If you happen to be working with an experienced real estate agent, they will help you refine your search and zero-in on listings that are the best match to your needs.
Although you probably already know how many bedrooms and bathrooms you want, it may be time to come up with a more specific picture of what you're looking for, in terms of square footage, lot size, neighborhood walkability, and distance from neighbors.
As you revise your list of requirements, you may decide to rank the importance of items like a screened-in porch, a backyard patio, a wood-burning fireplace, yard size, the age of the house, and whether you'd like a finished basement or attic.
Many people prioritize the size, layout, and functionality of the kitchen, too, so take into consideration your decorating tastes, the size of your family -- both today and five years from now -- and how often you expect to be entertaining guests. Perusing kitchen layouts and remodeling ideas online can help you clarify the type of counters, flooring, appliances, and cabinets that would please you the most.
Other features that will determine your level of satisfaction with a new home may include the architectural style of the house, the quality of the school district, and various convenience factors, such as nearby grocery stores, public parks, and medical/dental services. Commuting time to your job or business can also have a huge impact on your lifestyle, as well as your weekly budget and personal stress level! When choosing a neighborhood in which you'll feel comfortable, you'll also want to pay attention to first impressions, the amount of traffic on the street, and miscellaneous noises you hear while visiting the neighborhood.
Above all, try to avoid making snap decisions based on emotional factors, time constraints, or the fear of not being able to find "anything better." Although there may be days in which the prospects seem slim, it's essential that you maintain a positive outlook and be confident that new listings and fresh possibilities are always cropping up. Working with a seasoned buyer's agent who's familiar with the local market and is responsive to your needs will also help immeasurably in your search for the perfect new home!
Buying a home is a very detail-oriented process, and there's a lot of important things you can overlook if you're not organized.
Home buyers generally have the opportunity to do a last-minute inspection of the premises to make sure everything's up to standards prior to closing on the property.
A real estate buyer's agent can accompany you on the final inspection or provide you with advice on what to look for.
If you've already visited the home a couple times and had the house professionally inspected, you're probably well-acquainted with any major malfunctions, flaws, or repair issues. In many cases, home buyers may reach an agreement with the seller to fix, replace, or make allowances for mechanical or cosmetic problems. While real estate negotiations and sales agreements are as varied as the people and properties involved, there are typically dozens of things buyers need to check on before they sign the final documents and accept ownership of the property.
Final Walkthrough Tips
As you're doing the final walk-through of the house, it's necessary to remember or have notes on the condition of the home when you last looked at it. You'll also want to have a clear idea of what appliances, fixtures, and window treatments are supposed to be remain in the house after it's been vacated by the seller. Depending on how close your final walk-through is to the actual closing, that has probably already happened.
If there's anything missing that the seller agreed to include in the sale, then that's an issue you'll want to discuss with your real estate agent or attorney. Any property damage that may have resulted from moving furniture and other belongings should also be discussed before final papers are signed. The same thing would apply to landscaping changes that appear to be inconsistent with the sales agreement. Your buyer's agent and/or lawyer can serve as intermediary in getting these issues clarified and ironed out.
To make sure your final inspection is thorough, it's a good idea to have a "final walk-through checklist" to help keep you organized and focused. You'll want to take a last-minute inventory of items that are supposed to be included with the property sale, such as appliances, lighting fixtures, furnishings, window treatments, children's play structures, hot tubs, and anything else that was agreed to in the sales contract.
Other items you'll need access to may include garage door openers, manuals for appliances and mechanical systems, warranties, invoices for repairs made, and remote control devices for things like ceiling fans, alarms, and other systems.
Your checklist and final walkthrough should focus on a variety of items, including the working condition of appliances, the electrical system, plumbing fixtures, and the condition of walls, floors, ceilings, doors, windows, and landscaping features. For a complete checklist, look online or consult your real estate agent.
