f Out of Pocket Costs...
may have to pay when buying a
Everyone knows you need to
put money 'down' to buy a house. This 'down payment money' can paid for by
Buyers, Sellers, or by other means, like a 'down payment' assistance program.
knows that if you buy a house you will have 'closing costs' and other fees
to deal with. This 'closing cost' money (also) may be paid for by Buyers,
Sellers, or a 'down payment' assistance fund of some kind.
...its what you DON'T
know about the process
of buying a house that may kill your chances of home ownership or hinder you
from getting the house you want:
Buyers need to be aware that there are 'out
of pocket' costs they may have to pay in the course of a real estate
These are extra costs
apart from down payment money or closing costs, and may be required by the
Buyer's lender, a real estate agent, or by the purchase agreement contract. Some
of these costs may be optional for the Buyer but critical to
winning negotiations or getting important information about the
condition of the property. Buyers who are not fully informed
about these costs by a loan officer or real estate agent before they enter into a contract may be in
for a nasty surprise. In fact, it is highly recommended that Buyers be fully
informed about the entire
cost of a transaction before they enter
into any kind of agreement. Buyers should try to hire experienced
Realtors (and Loan Officers) who can advise them about these costs
- Inspections ($200-300). These
inspections are the Buyer's own inspections-although sometimes they may be
required by the Lender. Although they are optional, inspections are very
important. We recommend them highly, especially when you are buying an
older property (15 years old or more). You will typically need to pay the
Inspector at the time of the inspections. They will run between $200-$300, and
may also include termite inspections. Buyers who wish to accurately evaluate
the condition of a property should save their pennies and order inspections.
They are worth it.
- Earnest Deposit Money ($300+). This
is money the BUYER agrees to put down (in the offer) as a kind of downpayment
to evidence 'good faith' about buying the house. But unlike a down payment,
this money DOES NOT go to the Seller-it usually goes to the BUYER's agent (or
a third party) who deposits the money in a special account. If the deal closes
normally, the BUYER's earnest money is credited BACK to them at the closing,
where it may be used for other expenses, like closing costs. Giving earnest
deposit money is optional, but... SELLERS consider it to
extremely important when
considering whether to accept a Buyer's offer. A good rule of thumb (for the
Buyer) is to put down 1% of the sale price as earnest deposit money (if
possible). To sum up: depending on the price of the house, earnest deposit money
might cost the Buyer between $300-$2000 in out-of-pocket costs up front before the house closes.
- Home-owners Insurance ($300-600).
Everyone who buys a house needs to get this insurance to close. What confuses
most people is this: while the Buyer's homeowner insurance payments are
usually included in their monthly mortgage payments, the Buyer usually
must provide at
close a statement of having paid ONE
YEAR's insurance in advance.
This cost will usually run between $300-600. Buyers should shop for a good
rate, and ask their Loan Officer if it is possible for the first year's
insurance to be included in their closing cost
- Mortgage Company Credit Check ($50). Most banks and mortgage companies will need to run a full-scale credit check on potential Buyers. This complete credit check will include reports from all three major credit-reporting agencies, and will normally cost a Buyer $40-50.
- Mortgage Appraisal ($300-400).
Buyers will normally be required to pay for a mortgage appraisal. This
'appraisal' is the lender's inspection and evaluation of the property, geared
to determine the relative value of the house on the current market. They cost
between $300-$400. This money is usually due to the mortgage company
before close. Buyers are advised to ask their Loan Officer about the
amount of this service and how it will be paid before entering into an
Unexpected costs occasionally
occur. There are many reasons for Buyers to be socked with surprise
costs in the course of any real estate transaction. These may include: changes
or problems in the Buyer's financing package; discoveries about certain
aspects (or defects) in the condition of the property (for example,during
inspections) that warrant repairs or contract renegotiation; and occasionally,
any parties involved may be surprised by unexpected settlement fees or lender
costs as late as the closing date. Working with honest and experienced
Realtors and Loan Officers can save you from a lot of these difficult
situations, but they can protect their clients only so much. Buyers should
Altogether, it is safe to
say that BUYERS may need between $800-$1500 in "out-of-pocket cost" money to buy
a house. While some of these costs are optional or may be paid for by so-called
"down payment assistance programs", Buyers should always be aware how much they
may have to pay 'out-of-pocket'-- before close.
Prepared by: Chris
241-0554 x13 or (Cell)