Some people don’t realize there is more to purchasing property than just obtaining a loan and finding a house. You may not believe the number of people who don’t even think they need money down for a loan. Maybe you are one of those people. As a first-time home buyer, you simply don’t know what you don’t know. And if you haven’t purchased in a while, perhaps you don’t recall every step of the process. If you are interested in purchasing real estate, it is wise to speak to a licensed real estate professional in your area for more insight on what the home buying process entails. One of the most important things to note is that there are some expenses that you must pay directly. Here are 5 out of pocket expenses when buying real estate:
Pro Tip: It’s always a good idea to take a First Time Home Buyer’s Class. It will really help you understand the process more. Some lenders may even require it.
The first out of pocket cost is the deposit. The deposit, subtracted from the down payment, is any amount you choose to place with your accepted offer. Only after the deposit is paid, will the property to be taken off the active market. This lets the seller know you are committed or sincere about making the purchase. Whether you choose to put down $500 or $5000, that amount will be due within the next few days after your offer has been accepted.
Pro Tip: Although you can choose to remit as much or as little as you like, sellers tend to view an offer more seriously when they see that you have “skin” in the game.
The next out of pocket expense, which could be the largest, is the down payment. There are several different types of loan structures, but the most common types require some down payment. FHA loans, typically require 3.5% of the purchase price (the price you are paying for the property), while a conventional loan typically requires up to 20%. There are some loans that offer 100% financing, which means no money down (initially). Just keep in mind that there is no such thing as a free lunch. The down payment must be paid at closing, so be prepared.
Pro Tip: Regardless of your loan choice, you can always put more money down to lower your overall costs.
Probably the second out of pocket expense you will face is for the home inspection. If you are financing the purchase of a home, you will be required to have a home inspection. If you are paying cash for your home, be advised that you should definitely still get one. Once your offer has been accepted, your agent should schedule your home inspection as soon as possible. The price of a home inspection varies, and is contingent on the home’s size, but could be about $400+. The fees will be due either prior to the inspection, or immediately after the inspection is completed. That will depend on the inspector and/or inspection company.
Pro Tip: The home inspection doesn’t typically cover a video pipe inspection. The pipe inspection could be an additional $200 or more, again depending on other factors, such as location and length of pipes.
The next out of pocket expense due almost immediately after your offer is accepted is for the appraisal. The appraisers are chosen by your lending institution. If you are a cash buyer, or even a seller, it is still a good idea to obtain one. The appraisal can be helpful to a seller in determining your list price, or to a buyer determining purchase price. The appraisal can cost around $400.
Lastly, the final out of pocket cost we are discussing are the closing costs. Closing costs include the title attorney fees, document recordation with all appropriate parties, property taxes, insurances, etc. Both the buyer and seller are responsible for some closing costs. However, as the buyer, it is possible for you to show up to the closing table and have to pay nothing!
Pro Tip: Do your homework.
The outlined expenses may not be the only expenses you incur during a real estate transaction or process. This article should serve as a guide only, and not as all-inclusive. You will likely have other expenses, such as moving costs, and/or deposits that may be required for the opening up of utility accounts, and the like. Nevertheless, these 5 out of pocket expenses when buying real estate are very important to be aware of.
As we approach the new year, and new goals are set, many have purchasing property as a priority on their lists. If you don’t know any real estate agents personally, ask a friend or do a quick search online to find one. You can also contact me, and I can refer you to some agents in your respective areas. Reach out to a few, and move forward with who you feel most comfortable with. Let the agent know where you are in the homebuying process, and ask any questions you may have.
Pro Tip: There is no shame in not knowing, but it’s best to educate yourself as much as possible, even when you are working with an agent.
Realtor.com provides some good tips for first-time home buyers, as well. If you are looking to purchase property in Louisiana or Georgia, please feel free to send me a message here. I absolutely love assisting people with accomplishing their goals and building wealth in the process! Let me help you accomplish your goal in this new year. I’m ready when you are.