While you most likely know about saving for the down payment, do you know about the other costs associated with buying a home? If you only save enough for your down payment, you will have only half of the money you actually need in order to close on a home! Below is a simple breakdown of the costs associated with closing a home.
Down Payment
First, you need the money for your down payment for your loan. The down payment you need to have is a percentage of the price of the home. The lowest down payment out there is usually 3.5% of the purchase price. For example, if you are buying a 200,000 loan, your down payment will be 3.5% of 200,000, which is $7,000.
Inspection Fee
The inspector is an independent contractor, so you have to pay them separately. The inspection can run anywhere from 300-500, depending on the type and size of the building
Appraisal Fee
After the inspection, the lender will want to order an appraisal in order to make sure the home is worth the money they are giving out. The appraiser is also an independent contractor, so they are also paid separately. The appraisal fee is normally around 375, more if you are buying a multi-unit building.
Closing costs
Last, but definitely, you will have to pay closing costs. Think of closing costs as the sum of all the costs for the paperwork to put the home in your name. These costs will include your lender fees, fees to transfer the title of the home, county and state fees, etc. These costs normally average around 3% of the purchase price. Sticking with the same example of buying a 200,000 home, the closing costs will be around $6,000. While closing costs are rarely mentioned, they are almost half of the costs you need in order to close, so make sure to save up enough money for it.
If you decide to buy a 200,000 home, the estimated amount of money you need in order to close is the 3.5% down payment (7,000), plus the inspection fee ($300), the appraisal fee (375), and the closing costs ($6000). Add that up and you will be at almost $14,000.
When you apply for your mortgage, make sure that your lender gives you an estimate for all the closing costs, as well as the estimated monthly mortgage payment. The mortgage estimate will break down where the money is going, so you can better prepare yourself and make sure you have enough money to close on the home. Any questions or comments, please reach out to me here. Thanks and have a great day!