What Expenses Can I Expect When I Buy a House?

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Buying a house is an exciting time. However, buyers need to be prepared that there are some expenses along the way. Here is a description of some of these:

Initial Funds Once you have decided that you want to make an offer on a house and that offer gets accepted, you will be expected to provide two checks within the first couple of days. One of these will (usually) be a personal check, made directly out to the owner of the home for what is called the option fee. This fee “buys” you a length of time, usually 7-10 days, during which you will pay an inspector (yes, another expense) to do an inspection of the house for you. There is no set amount for the option fee, but it is usually around $100-200. This money is usually applied toward the sale price of your house, but is non-refundable. You are paying for the option period. The second check at the outset is what is called the earnest money check. It is usually in the form of a cashier’s check made out to the title company. Again, there is no set amount. Sometimes the seller specifies an amount; sometimes it is 1% of the selling price; sometimes it might be an arbitrary number. Regardless, it is usually at least %1 of the sales price. The earnest money will be credited as a part of your down payment.

Funds Needed Before Closing During the option period, you will want to hire an inspector to inspect the property for you. The report that is generated will be used to discuss a repair amendment with the seller. If significant problems are found that you do not want to deal with, you can still back out during the option period with no lost funds, except for the option fee (this is the reason you paid for this period of time). The cost of an inspection is dependent on the size of the house and on the fees charged by the inspector. The cost is usually $500 or less. There can be other inspections needed for pools, termites, septic systems, etc. Sometimes, the inspector may recommend that additional inspections by specialists in the field (a foundation inspector, an HVAC specialist, etc.) Each of these will have an additional fee. Each of these inspectors will generate a report for you that will be helpful in negotiating repairs and finalizing your decision about buying the house during the option period. Most lenders charge the buyer an appraisal fee (This is a good question to ask your lender up front. Sometimes, you can get the broker to pay the appraisal fee.). The lender usually orders the appraisal after the option period has passed. Typically, the appraisal fee is in the $450-600 range.

Funds Needed at Closing The title company will tell you the exact amount of money you will need to bring to closing, either in a cashier’s check or in an electronic payment. The biggest portion of this will be the down payment you are making on the house. For most conventional loans, this will be 20% of the selling price. For some other loans it may be 3.5%-6%. It is even possible with some loans for there to be no down payment. There can be other closing costs (like credit report fees, title insurance fees, attorney fees, recording fees, etc). and pre-paid costs that are due at closing as well (taxes for the current partial year, homeowner’s insurance premiums may need to be pre-paid). In some instances, some seller assistance with closing costs may be negotiated, and these costs will be offset. Ultimately, the title company will tell you how much of what is owed needs to be paid with a cashier’s check, and how much can simply be a part of the overall financial obligation that is paid through your mortgage payment each month. It is very important that you talk to your lender and to the title company about these fees and with any questions you have along the way. I can also create a “Net Sheet” for you to give an estimate of the various closing costs.

Utilities and Services at Your New Home As closing approaches, you will need to contact the various utility and service companies (electricity, gas, water, cable, security, Internet, etc.) to arrange for the start of their services. Each of these will most probably involve some sort of start-up cost or deposit. In some cases in might be relatively minimal, in others it could be hundreds of dollars.

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Disclaimer: The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the HRIS.
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