Blog

17 September 2016

What are Costs Associated With Buying a Home?

Buying a home will probably be the biggest personal financial decision you make in your life. When you approach buying your first home, it could be anywhere from a $150,000 decision up to $500,000 and more! This blog post is going to give you an idea of what kind of costs can be associated with buying a home. Keep in mind that these are estimates and none of these numbers are concrete, I just hope to give you an idea.

Costs Associated with the Purchase

Down Payment – Everyone’s down payment will be different, you will get in touch with a lender to figure out the best loan program for you.  Before 2015, the minimum down payment for most people was  an FHA loan with 3.5% down, the changes that occurred at the end of 2014 into 2015 established new guidelines for conventional loans. The minimum down payment for a conventional loan is now 3.0%. Most first time home buyers will probably be in the 3%-20% range but you are welcomed and encouraged to put down more if possible. The more you put down, the stronger the offer is. The full down payment will have to be paid on the day of settlement, when you take possession of the house. There are a ton of different financing options, so you are not limited to the few ranges I mentioned above but that’s where most people will fall.

So you’ve found the home you want. We wrote the offer and the contract has been accepted (Click Here for the steps of the buying process).

Earnest Money Deposit – The Earnest Money Deposit is the “good faith” money that you include with your offer. In our market in Northern Virginia and DC, it is acceptable to include anywhere from 1.5%-3.0% of the offer price though there is no definitive amount that you “have” to deposit. Your agent will need this check before submitting the offer and it must get deposited within 5 days of the offer being accepted. At settlement, the earnest money deposit is subtracted from your down payment. So if you were putting down $30,000 and your earnest money deposit was $5,000. On settlement day, you would only need to bring $25,000 to cover the day payment.

The Home Inspection – The Home Inspection is one of the main contingencies of the contract. These can vary in price depending on the size of the property and the inspector. For a small condo, you can expect to pay around $300. For a Single Family Home, you can expect to pay anywhere from $400-$500+. These are not definitive numbers though, these are ball park estimates of what you can expect to pay. For more information on the Home Inspection – click Here!

Closing Costs – I’m lumping all the closing costs into one category because they can vary depending on each individual transaction, it’s hard for me to give good estimates for each part that makes up closing costs. Your lender will give you estimated closing costs, so they aren’t going to creep up on you on the last day. Closing costs are paid at settlement. They cover a wide variety of things including but not limited to the appraisal, transfer taxes, home owner’s insurance for the first year, lender fees, lender’s title insurance, owner’s title insurance, pest inspection and Survey. Again, your closing costs are not limited to these, but this is what you can typically expect. The total closing costs you can expect to pay can be in the range of 3% to 5%. There are ways to get closing costs paid for by the sellers which we can discuss in detail when we meet for a buyer consultation.

These are the most common fees associated with the actual transaction. Once you own the home, there can be a few other costs you may want to keep in mind.

Costs Associated with Living

Moving costs – Depending on where you are moving to/from and how much stuff you have, you will want to set aside a certain amount of money for the move. Every situation is different, so just keep in mind moving costs when you are budgeting.
Utilities – Utilities in your new home may be different than your previous utilities. If you are moving from a 1 bedroom rental where your utilities may be included in your rent to a single family home, the costs are going to be drastically different. So again, one thing that I can’t give an estimate on but one thing you certainly want to budget for.

Maintenance – Keeping up with maintenance around your home is extremely important and you can definitely expect to have maintenance pop up. A good rule of thumb is to budget 1% of your homes purchase price for yearly upkeep. You’d be amazed at the things that can happen to your home right after you take possession.

Lastly and certainly one you should be able to control….

New Stuff – Now this one isn’t going to be for everyone, but once you have your new home and possibly more space, you are going to want to fill it right! In the first few months of owning your home, try not to go crazy at the furniture store. You own this home now, you will have time to get all the furniture you want, you don’t have to be out at the end of the year because your lease is up! So take your time and spend smart.

Buying your first home can be a very exciting time. Don’t let the financing stress you out too much, it’s not something you want to bat an eyelash at but your lender will guide you through the process and ensure you are ready to make this decision. You will want to be spending smart during the months leading up to, during, and after your home purchase. Don’t buy that $3,000 couch a week before settlement! The costs I laid out here are not definite costs, every transaction is different, my goal is to provide you with an idea of what you can expect, once you meet with me and your lender, you will have a more solid idea of what the real costs will be for your situation.

If you are thinking about buying – CLICK HERE to view my first time home buyer series and get in touch with us today to take your first steps towards home ownership!

Use Wufoo templates to make your own HTML forms.
Share
Facebook Twitter Linkedin Google plus
 

Let's Get Started

Get in touch Get in touch with an agent who can guide you step by step
Get CMA Find out how much your home is worth!