The Costs of Buying a Home
Planning on buying your first home? To help you be a successful homeowner, be sure to understand how much of a down payment you will need and what other funds you should have on hand, including closing costs and emergency funds.
To get a better idea of how much money you'll need, we decided to check in with Bryant Roman, a real estate attorney, who walked us through some of the most common costs associated with buying a home.
1. The real estate attorney
Many home buyers hire a real estate attorney to represent them during the process. Although an attorney isn't required in most states, having a lawyer who specializes in real estate on your team may save you some headaches down the line.
The lawyer will review the sales contract and help to look out for your best interests. "Buying a home is probably the largest financial transaction you've made to date," says Roman. He recommends calling an attorney as soon as your offer is accepted, because buyers typically have a very short window of time to sign the contract and move forward with the deal.
As with most professional services, attorney's fees vary by location--for example, lawyers in major metropolitan areas tend to charge more than their counterparts in the surrounding suburbs. The amount you'll pay also depends on the amount of the home purchase. According to Roman, services usually run from several hundred to as much as $1,000, but can sometimes reach $5,000 or more.
In closing, while a lawyer can be a great asset during the home purchase process, those fees are an entry that will need to be plugged into your overall budget. .
2. The home inspection
One expense that you won't want to skip is the home inspection. "Your contract will include an inspection contingency," Roman says, "so you want to have a licensed inspector go in and search for such things as termites, radon and any structural damage." If any of those conditions is present, you can ask the seller to remedy the situation or give you a credit toward the cost of the repair.
"Ultimately, if they aren't able to do any of those things, you should be able to cancel the contract." Roman says.
As with the attorney, the time to hire an inspector is soon after your offer is accepted by the seller. Although prices vary quite a bit around the country, you can expect to pay an inspector, on average, $300 to $400.
To learn more about home inspections, tag along with a home inspector on What Works Now.
3. Closing costs
Finally, there are all the closing costs associated with a mortgage. Typically, you can expect to pay about 3% of the total loan amount in closing costs, although that number will depend on the state you live in and the type of mortgage you choose.
There are many elements that go into your total closing costs, which may include: down payment, mortgage points, private mortgage insurance, property taxes, homeowner's insurance, transfer fees, recording fees, origination fees, appraisal, notary fees, title insurance and more, depending on your loan program and where you live.
Here's some good news: because we're in a buyer's market you may be able to negotiate to have the seller pick up some of these costs, says Roman.
In addition, by knowing what to ask, you can be sure to be prepared for all that closing brings your way. Keeping an open line of communication with your lender can help ensure you receive the keys to your new home.
Here are a few additional helpful hints:
- Ask your lender for a one-page summary of key terms of your loan in easy-to-understand language.
- Expect a Good Faith Estimate when you apply for your loan, which itemizes the costs of your loan, including estimates of the closing costs.
- Your final HUD-1 Settlement Statement provides an itemized list of the credits and charges, for both the buyer and the seller, based on the contract terms and outlines the dollar amount you need to bring to the closing table, usually in form of a certified check. You'll want to ensure that your final HUD-1 statement doesn't vary too much from your Good Faith Estimate.
- Make sure you understand the paperwork you are signing at your closing and if you have any questions don't hesitate to ask.
One final thought, to set yourself up as a successful homeowner - make sure you still have some cash left over after your closing. It's always a good idea to have some money set aside for utilities and emergencies like necessary repairs for your home or medical expenses.
Interested in learning more about the home buying process? Check out these AOL Real Estate videos:
Video: Home Inspections: It Pays to Know What You're Buying
- Video: Can Fixer-Uppers Work for First Timers?
Video: Common Mistakes Home Buyers Make
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