Congratulations, you are looking to buy a new home! This is such an exciting time in your life, but it can also be an expensive one. When it comes to buying a home there will be plenty of hidden expenses you may not have taken into account when you decided to become a homeowner.
It is important to work with an agent and lender who will explain what these expenses are, where they will come into play and how much you could possibly owe. Asking questions about these hidden expenses when buying a home can help you budget and not catch you off guard.
1. Paying an inspector
Before buying a home, you should always hire a home inspector to take a look at every single square inch. This gives you the chance to catch any issues with the home that could either be fixed before moving in, or lower the total cost. While you may not want to pay for an inspector upfront, it will save you a lot of money in the long run.
2. Earnest Money
Your earnest money is the chunk of change you hand over before you close on the house that shows you are serious about purchasing the property. This is typically between 1-3% of the sale price. This protects the seller in case the deal falls through. If you move forward with purchasing the property, then the earnest money will be applied to either the down payment or closing costs.
3. Down payment
Your down payment is typically 20% of the entire purchase price of the home. While it is encouraged to pay 20%, you do not have to if you do not have the funds readily available. Most first time buyers will put down around 7% as their downpayment. The smaller the down payment, the bigger the monthly mortgage long-term. You will also most likely have to pay mortgage insurance which can start to add up.
4. Closing Costs
So you know what you are going to pay for the down payment and the earnest money and you are about to sign your closing documents. You look down and see an extra few thousand dollars they are asking you to pay. What is this for? Closing costs. This can include loan origination fees, underwriting fees, title insurance, homeowners insurance, appraisal and survey fees, property taxes and additional third party fees. Here is a tip: you do not always have to pay closing costs. You can negotiate with the sellers and see if they will cover closing costs.
5. Home Warranty
This one may be a bit obvious, but sometimes catches new homeowners by surprise. Occasionally, your appliances and other parts of your home will be covered under a one year warranty that the seller purchases for you. But it may not be 100% covered by the seller. They may ask you to split the cost of the home warranty. Or, they are only going to cover the warranty for one year and then you have to pick up the payments. While yes, it may be a good idea to keep the home warranty, you can shop around to see if you get a better deal somewhere else. Here is a tip: Before your home warranty is up, bring your inspector back out to take one final look at the home. He or she may find things you wouldn’t even think of and they could be covered in your home warranty (this is especially a good idea if you have purchased a new build!)
We want your home buying experience to be easy and stress free – avoid hidden expenses when buying a home. Let us help you with your loan. Ken Venick has over 35 years of experience in the real estate business and we are your one-stop-shop to handle all of your mortgage needs. Contact us today!