Did you know that buying a home requires more than just the money used to purchase the home itself? With inspections, appraisals, and more, there are other incidentals during the mortgage process that you will need to prepare for financially in order to have your mortgage process go as smoothly as possible. Below, we’ve outlined five expenses to remember when planning to purchase a home:
1. Earnest Money
Earnest Money is an amount of money provided, usually by check, early during the home-buying process. It is used as a good-faith gesture as a means of assuring the seller and other parties involved that you are serious about purchasing the home. Unlike your down payment, earnest money is not meant to represent a portion of the purchase price; the amount of earnest money required is much smaller, usually between $200 and $2,000. In most cases, if you do not close on the home, you can usually get your earnest money back. Otherwise, it is added to your down payment or put towards your closing costs.
2. Down Payment
Most mortgages require a down payment, though the amount required varies from loan type to loan type. A percentage of the loan amount, usually a minimum between 3-5% of the sales price, is required in order to proceed with the loan. You may exceed the minimum down payment, of course, which might positively impact your monthly mortgage payment or interest rate.
3. Appraisals
Appraisals are a requirement for most home purchases. An appraisal assesses the quality and condition of the home you are trying to purchase, as well as determines whether the sales price is accurate based on the market in which the home is located. Since your mortgage lender is responsible for lending you the funds to purchase your new home, they want to be sure that the home you’re buying is worth your money— and theirs. For a house to receive a “good” appraisal, it must be in acceptable condition and the sales price must match the sales price for similar properties in the same area (this is determined by looking at comparables, or “comps”, which are recent sales of similar homes in the area). Many appraisals are done “as is”, meaning the house is good to go, but as some products like FHA loans have stricter appraisal requirements, the appraisals may be completed “subject to the final inspection”; this means that there are repairs that must be done and verified by the appraiser before closing can take place. Appraisal costs vary but expect to pay between $500-$700 for the appraisal, and $150 or more for the final inspection.
4. Home Inspection
Different from the appraisal, home inspections aren’t typically required to purchase a home; however, they are strongly recommended. While an appraisal determines the market value and overall quality of the home you’re trying to purchase, a home inspection is a much more detailed, top-to-bottom inspection of the property. If an inspector finds faults or defects in the property during the inspection, it is possible for you to renegotiate the contract, insist on repairs, or, if the contract was contingent on a good inspection outcome, allow you to walk away from the sale. The cost of a home inspection varies from state-to-state, but should you choose to get one, expect to pay anywhere between $300 and $500.
5. Closing Costs:
Closing costs are paid on every loan, however, it is difficult to state an exact figure you can expect to pay. Closing costs vary from loan to loan based on state, loan type, and property. You’ll have the opportunity to negotiate with the seller to attempt to have them cover some, most, or even all of the closing costs. It also may be possible for you to roll some of the closing costs fees into your mortgage, depending on your loan product, to be paid out in installments throughout the life of your loan. Whatever your closing cost amount, you will receive a loan estimate early enough that you can make the necessary adjustments and decisions well in advance.
Again, prices for appraisals, inspections, and closing costs can vary. To know for certain, or to get more information about loans in general, contact one of our experienced Southern Trust Mortgage loan officers. Our team of highly trained experts is happy to help you navigate every step of the mortgage process. Contact us today and let us make home happen for you.
