Buying a Home - Out of Pocket Expenses
As a professional buyer's agent, I often find myself educating f first time buyers. I take a lot of pride in helping others succeed and this is just another one of my ways of doing so. If you are a first time buyer or even if you've bought a home before, but want to be more comfortable with the buying process this post should enlighten you.
Before I get too far, don't let the title, "professional buyer's agent" scare you. Buyer's agents like myself don't cost buyers but rather save them money and protect buyers' interests. Sellers pay all the brokerage commissions and you are entitled to professional representation. It's silly to contact the listing agent considering they promised to net the highest price possible. Like going to court, you should have professional representation on your side.
How Much Money do I Need?
When planning to purchase a home, please understand it will take some money out of pocket, even if you plan to pursue one of the “no money down” loans.
Most real estate purchase transactions will require a check for earnest money to be presented along with your offer. Earnest money is a gesture of “good faith” to the seller that you do intend on completing the purchase. Although not required to be included with an offer in the state of Ohio, nearly every seller will require it anyway.
Earnest money can be as low as a few hundred dollars to as high as thousands of dollars. A decent and fair amount would be $500 on a financed transaction and if you are fortunate enough to be able to pay cash for your next home purchase, be prepared to write a check for at least 10% of the final purchase price.
I have helped dozens of my client’s obtain a winning offer on a home attributed to the amount of the earnest money check. The higher the check, the more serious you appear to be as sellers view you having more skin in the game. This is especially true on a cash deal. $500 is a typical amount for earnest money.
You ask, “What happens with the earnest money check?” The answer is pretty simple. The check is deposited into the brokerage’s bank account (based upon the guidelines of the agreed upon purchase contract as to whom is responsible to hold the money). The money will be put into a non-interest bearing bank account and returned to the buyer at the closing table.
IF a dispute should arise during the purchase transaction, the earnest money could be refunded to the buyer, but, both parties must sign a “release of earnest money” document. If neither party agrees as to who should receive the money, it could be held up in the brokerage account for up to two years.
Another expense that you need to be aware of is the cost of the appraisal of your next home. A lender will take care of the ordering and scheduling of the appraisal, but not until you have paid for it in full. The cost of an appraisal can vary, but it is generally in the neighborhood of $450.00. (The money spent on an appraisal will not be refundable for any reason, even if you do not complete the purchase).
Another big expense is the cost involved with having the home inspected. The average cost for a “whole house” inspection is about $300. However, just like with anything else, if you want more, ya gotta pay more. Getting the home inspected for termites (not required with most loans, but definitely a worthy inspection) will set you back about $75 on average.
Another inspection that is sometimes overlooked is a radon inspection. If you don’t know what radon is, it is a colorless, odorless gas that has been known to cause cancer. The cost for this inspection average between $150-$200. All in all, total inspections of the property will set you back anywhere around $450-$600. (The money spent on inspections will not be refundable for any reason, even if you do not complete the purchase).
Depending upon which lender you decide to work with, you might find yourself paying a few hundred bucks for application fees, etc in addition to everything else. When interviewing lenders for your mortgage, it is in your best interest to ask a lot of questions about pricing, terms, etc.
The bottom line is, expect to shell out several hundred to a few thousand bucks when entering a home purchase transaction. Good Realtors will negotiate to help balance some of these expenses out for you, perhaps recouping some in the closing or asking for a home warranty, or even an appliance or carpet allowance.
I'll be posting soon about closing costs, what to prepare for and what you can expect.
The information above is written to make sure that you are aware of some of the costs of buying a home before you embark upon one of the most expensive journeys of your life!
If you would like additional information about the home buying process or would like for me to answer any questions for you, please let me know.
In the meantime, you might enjoy looking at the huge compilation of information for home buyers here on our website.