Wednesday, February 20, 2019 / by Nicolette Samash
When a home buyer prepares to purchase a home, their main financial concerns are usually #1 what their monthly cost is going to be and #2 how much money they are going to need to save to put down on a house. Some buyers get to utilize programs where they do not need to use any money on a down payment, some buyers save up just enough for a standard 3.5% FHA home loan. What most buyers don’t realize or hear about until they start the actual process of finding a home is the OTHER costs associated with buying.
1. Earnest Money. Earnest money is money that is held throughout a transaction and refunded to you or applied to your down payment at closing. Earnest money is generally 1% of the purchase price of a home (although it is your choice how much to put down for it), but a higher amount expresses to the seller that you are willing to put more on the line to purchase the home. Although earnest money IS given back to you at closing, if the transaction falls through in a way that you are not protected, the earnest money can be subject to forfeit to the seller as compensation. However, home buyers have many contingencies built into the contract that protect them from losing their earnest money.
2. Closing Costs. Closing costs are expenses relating to a real estate transaction that are in addition to the purchase price of your property, such as fees for an attorney, a title search, title insurance, taxes, lender costs and some upfront housing expenses such as homeowners insurance. General rule of thumb is that closing costs are typically about 3% of the purchase price of the home. This means on a $200,000 home the closing costs would be roughly $6000. It is negotiable who will pay for the closing costs in a transaction – the Seller or the Buyer. The problem for home buyers arises when they do not have the money to cover their own closing costs and they are in a multiple offer situation where the competing offer can. Many home buyers, especially first time home buyers, have not prepared for paying for closing costs and need to ask the Seller to pay for some if not all of them. In that scenario there are tricks to still make your offer as favorable as possible to the seller that your real estate agent can discuss with you.
3. Inspection Fees. Home inspections are ALWAYS a good idea, but will run a home buyer a couple hundred dollars. In the Spokane area home inspections are generally around $350. As a Buyer you also have the opportunity to have other inspections if you have an inspection contingency on your home – radon testing, sewer scoping, water testing, air quality testing, etc. These are all an upfront cost to you though.
Buying a home can drain some of your finances initially and be a fairly stressful experience, but in the long run you are paying into an investment that will put money in your pocket instead of into your landlord’s pocket. You will have freedom to make changes to the home you own and won’t have to worry about strict apartment rules, deposits or pet fees. It IS worth it, and is important to keep that in mind when expenses do arise.