The feeling of not knowing exactly what to expect in costs or how much you need to save up when buying a home can be stressful. It’s not always easy to see where your money goes or how it gets broken up to cover costs. Elizabeth Ávila of Custom Fit Real Estate breaks down the main costs associated when buying a home to help set your mind at ease.
Costs Associated When Buying A Home: The Breakdown
Earnest Money Deposit
Earnest Money Deposit is money you put forth to let the sellers know that you are serious about buying their home. When transactions go smoothly, your earnest money goes towards your closing costs or to the down payment. If for any reason the deal falls off the table, the buyer gets their earnest money back. Earnest money can typically cost 1 – 5% of the purchase price of the home.
You home inspection costs can be anywhere from $350 – $1500 depending on the size of the house. The Inspection report gives you the current conditions of the home so that you make sure you’re not buying a lemon. It’s best not to skip out on home inspections because you don’t want to risk buying a house with a bigger unseen issue like mold, or a termite infestation.
This helps the bank decide that the purchase price matches the value of the home and can cost you $500 – $700. The appraisal cost is a necessity if you are trying to get a loan to buy your home. Banks will not lend you money if the appraisal shows that the house is valued less than the loan. This is because they want to ensure that if you default on your mortgage, the home can be sold to cover losses according to The Mortgage Reports website.
Closing Costs and Prepaids
Bankrate.com explains that closing costs can consist of attorney fees, additional appraisal fees, and government fees and taxes to record property sale. Prepaids are upfront costs that consist of property taxes, usually 6-12 months of homeowner insurance premiums, and and additional two months to go in to you escrow account. It also includes two months of property taxes, and interest that accrues on the loan from date of closing to the end of the month. You can expect to pay 3 – 6% of the purchase price of the home for these expenses.
Down Payment Depends on the Loan
FHA Loan and Conventional Loan for Primary Residence
FHA loans requires as low as 3.5% and according to Rocket Mortgage you’ll also need a credit score of 580 or higher. If your credit score is lower than 580, you will be required to put down 10%. For a conventional loan on your primary residence, you are required to put down 3 – 20%.
Loans For Condos, Investments, and Second Homes
Out of the types of loans, conventional loans are the only type that can be used for investment property. It requires that you put 20-25% down payment, if your credit score is higher than 720, you can qualify for a 15% investment property loan. Conventional loans are also the only loan that can be used for secondary homes. To qualify for the secondary home loan, you need 10% down.
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