When you set out to buy your first home, everyone is eager to throw out advice, but are they really telling you all you need to know?
Buying a home is a very exciting time in your life and you should have all the information needed to make the process as fast and smooth as possible.
You should prepare for these 9 expenses when buying your first home.
When you put an offer in on a house, it may help to put down an amount to show the seller that you are a serious buyer. In a competitive market, this can give you an edge over the competition. The amount can differ greatly, depending on the amount of the home’s asking price.
This money can later be given back to you at the closing table, or put toward your down payment or any additional costs you may have on closing day. So don’t worry, it’s still your money…kind of…queue scary music.
After your offer is accepted, and you and the seller have agreed on a selling price, now comes the home inspection. You want to learn as much as you can about the house before you buy it to minimize unpleasant surprises and difficulties in the future, like, what if the previous owners had pet termites and then they all got loose?
The buyer typically pays for the inspection in a real estate transaction, but you can always negotiate in the purchase agreement with the seller.
If the inspection only reveals a few defects here and there, you can then talk to the seller about fixing the problems before the closing date or ask for an allowance to repair the defects yourself.
Mortgage lenders require an appraisal on your home before they provide the loan because that property is the collateral for the loan. The buyer is responsible for paying for the appraisal in a real estate transaction. Some lenders allow you to tack on the price of the appraisal to your mortgage but some do not, so be prepared to pay up front.
4. DOWN PAYMENT
Depending on your loan, you may need money for a down payment on closing day. The down payment can vary greatly between 0% (RD loan) to 3.5% (FHA loan) to 20% (most conventional loans). This is something you will discuss with your lender and they will decide which loan is right for you. But it is always best to be prepared to put a good chunk-o-change down on the house.
5. INSURANCE (home, title & flood) AND PROPERTY TAX
You need to begin shopping for home insurance and flood if you are in a flood zone. You also need to find out the cost of your property tax. You generally pay for home (flood) and property tax yearly, but most lenders have you pay monthly in your note, and put the money in an escrow account. They then transfer these monthly payments to the insurance company and government for that once a year payment. This way you never miss a payment on your insurance or property tax because hey, it’s once a year and who has time to remember that?
Though you can pay “monthly”, you will need one year’s payments for these at the closing table (taxes are prorated). This is to build that escrow account and to insure, if prices rise or you receive a financial blow in some way, you have back-up to pay on your insurance and tax.
Though you pay these things a year in advance at closing, you are NOT billed your first mortgage note for 30-60 days. You should always check with your lender to see when your first home payment will be due after closing.
Title insurance is a one-time fee. You are required to purchase the lender’s policy of title insurance but it is strongly recommended to buy the owner’s policy as well. When you purchase both, you receive a significant discount for the owner’s policy. Buying a home is a huge investment and you need to be protected! Call, email, or come by and see us at Choice Title if you have any questions or concerns…we are here to help!
Was that enough information to make your head explode and cause you to cry uncontrollably? Sorry, we’re almost to the fun stuff…hang in there!
6. CLOSING COSTS
Unless the seller agreed to pay all the closing costs, you need to prepare for these costs. The amount the seller will or will not pay is discussed in the purchase agreement. Closing fees are generally 3% of the sales price of the house you are buying. Your lender will give you the final price of closing THREE BUSINESS DAYS before you close. This gives you a few days to get your finances in order. The number they give you may be scary, but don’t worry, you are prepared for this!
7. RESERVE FUNDS
Your lender and underwriter want to make sure that once you have paid your down payment, your insurance & tax, and other costs, that you will have money to pay your actual mortgage note. They are looking out for you and themselves. If you drain your accounts to pay for a house but can’t make the actual monthly payments, everyone loses.
You’ve heard not to touch your credit once it is being monitored for a home loan but the same goes for your checking and savings accounts. It is best to save the big purchases (ex. furniture, appliances, home repairs) for AFTER closing so that your account stays nice and fat. This is not only for your sanity but for the lender’s piece of mind.
*You should speak with your lender about the exact price of all of these items, services and situations to better understand YOUR financial situation. All prices vary according to location, size, price of the home, your closing date, and the real estate team (realtor, lender and title company).
8. REAL ESTATE TEAM
Realtor: If you decide to use a realtor to find your dream home, you do not pay out of pocket. The buyer’s agent is paid by the seller. Both the buyer’s and seller’s agent split the commission from the sale at a predetermined percentage.
Lender: Your lender’s fees will be included in the closing costs so make sure you really look at and understand a lender’s fees, the loan estimate and the closing disclosure.
Choice Title: Our fees are also worked into the final closing costs, along with the title insurance you purchase. Remember that purchasing both a lender and owner policy of title insurance together gets you a significant discount, and it is a ONE-TIME FEE paid at closing.
9. THE FUN STUFF
Don’t forget to save for the fun stuff that goes along with buying a home!
Furniture, décor, new shiny appliances, and any repairs you want/need done to the house. A day or two after you close on your dream house, go buy that awesome furniture set you saw and all the home décor your heart (and bank account) allows.
When it comes to appliances, USUALLY the stove, oven, and dishwasher stay. You generally need a washer, dryer, and refrigerator because the owner took theirs with them, but like most things, this can be negotiated.
Don’t forget to save a little money to turn on all your necessities like water, trash, cable, etc. Though these fees don’t usually run too high, all these services can add up quickly!
Remember to pace yourself when moving in. Don’t overspend because you think the house needs to be perfect and picture-ready the moment you move in. A house takes time, patience and love to turn it into a home.
Source: The Choice Title team & Kayla Franz, Property One Group
Choice Title Locations
BATON ROUGE: 4600 Sherwood Common Blvd. | Suite 104 | Baton Rouge, LA 70816 | Phone: 225.744.4241 | Fax: 225.744.4240
PRAIRIEVILLE: 17531 Old Jefferson Highway | Suite A | Prairieville, LA 70769 | Phone: 225.744.4241 | Fax: 225.744.4240