If you’re planning to buy a new home soon, you’ve likely given some thought to the maximum price you can pay and the down payment you can offer. And if you plan to finance the purchase, the monthly mortgage payment could also be on the list of important expenses you’ve already started accounting for.
In terms of immediate expenses, those are certainly the big three. But the path to homeownership is strewn with other, “hidden” costs that most people forget about or are unprepared for, especially if they’re first-time buyers. Here’s a checklist of the most common; be sure to budget for them, to avoid any surprises once the contract is signed and the countdown to closing has begun. And, as a bonus, a few things to allow for once you move into your new home.
Closing costs must be paid before you take legal possession of the home. A variety of fees for separate services (loan origination, underwriting, title search, deed recording, etc.), these expenses primarily relate to obtaining a mortgage, though some help verify the home’s ownership, condition and value. While they vary greatly by state, closing costs generally amount to between 2 and 5 percent of the mortgage amount. To illustrate, if you borrow $420,000 to purchase a home, your closing costs could range from $8,400 to $21,000.
Home appraisal and inspection
You’re not required to have a professional home inspection done before your purchase closes. However, it could be well worth the expense, especially if there are issues with the property that aren’t obvious and require a closer look to identify. On average, potential buyers pay roughly $339 for home inspections, according to the contractor-search service Angi. However, this rate can and does vary by the location, age and size of the home.
If you put an offer on a home and it’s accepted by the seller, you’ll need to follow it up with earnest money within one or two days. It’s a good-faith deposit demonstrating your intention to abide by the sale agreement and ultimately purchase the property. There’s no law mandating earnest money be put down on a prospective home purchase, but at least 1 percent of the purchase price is standard. In some instances, prospective buyers offer to make even larger deposits to win over sellers.
Escrow accounts serve two purposes: holding earnest money and remitting payments for property taxes and homeowners insurance. The earnest money is applied to the purchase price at closing. But if there’s an issue with the home, as revealed in the inspection, the funds will be …….