How much money do I need in order to buy a home?
How much money do I need in order to buy a home?
If you are looking to buy a home, it's important to be prepared especially when it comes to your finances! We have compiled a list of potential expenses you could have during the home buying process here in Columbus, Ohio. We recommend that you speak to your local real estate agent to verify if any of these apply to and your specific situation.
#1. Down Payment
A down payment is a common expense for home buyers today. When you speak to your lender, ask them about your down payment options. In some cases you may be able to put down 0%, 3%, 5%, 20% or any number in between.
Did you know, depending on your qualifications, there are loan programs available that will allow you to put 0% down and some that even cover your down payment? Ask me for details!
Your down payment could effect your monthly payment and overall terms of your loan. It's important to speak to your lender, review all of your options, and figure out what the best plan is for you and your real estate goals.
#2. Closing Costs
Closing costs are also an expense determined by your lender. Depending on your loan product and specific terms, your lender will give you an idea of what these might be. Typically they are a few thousand dollars (could be approx. 1-5% of the purchase price of the home). If you need help covering your closing costs, ask your lender for guidance! There may be a program or other solution out there for you.
Ask your real estate agent if you could get your closing costs paid for by the seller or the builder. Depending on the current real estate market, this may or may not be an option.
Once you're in contract on your dream home, you will likely perform an inspection on the home within the first week or so. In Columbus, Ohio, you (the Buyer) will be able to perform any and all inspections during your inspection period. These inspections may include a home, termite, radon gas, chimney, lead base paint, roof, HVAC, electrical, well/septic, and others. Sometimes the inspections you choose are specific to the home you're buying, if you have any specific concerns, or if your home inspectors "red flags" something within the home that you want to have inspected further.
Home inspections can cost anywhere from $300 and up. On average our clients typically spend between $500-$700 or more. This is an expense that you, the Buyer, will pay for at the time the inspection is performed and regardless of whether you buy the home or not.
An appraisal is different than an inspection. An appraisal is ordered by your lender to determine the current market value of a home and to confirm whether or not it's worth the amount stated on your contract. This is an expense you'll need to run by your lender. Some lenders will require this fee to be paid at the time the appraisal is ordered, may waive this fee altogether, or may charge you the fee at the time of closing. Appraisals can cost approximately $500 or more. Clarify the cost and details of the appraisal with your lender!
#5. Appraisal Gap
Have you heard the term, "Appraisal Gap"? Often times, to compete in the current real estate market (2022), Buyers are writing an offer where the contract price is over the current list price. This might be easier to explain with real numbers, so here we go!
Let's say a home is listed for sale at $450,000. Then you, the Buyer, offer to purchase that home for $500,000. The Seller accepts your offer and you are now in contract. The appraisal is performed and the appraiser determines the home is only worth $460,000. There is now a $40,000 gap between the appraised value and the contract price. In a Sellers market where Buyers are competing in multiple offer situations, it's not uncommon for Buyers to offer a specific sum for an appraisal gap. Essentially, in the event the appraisal is lower than the purchase price, the buyer will be $XXXXX over that lower appraised value.
We recommend that you speak to your real estate agent to see if an appraisal gap is something that you need to prepare for and how much you should probably set aside. We have seen appraisal gaps offered anywhere between $3,000 all the way to $50,000 and beyond. It really depends on the home, the market, and so many other factors.
Your real estate agent will be the best source to navigate this!
#6. Earnest Money
Earnest money, or good faith deposit, is a sum of money you put down to demonstrate seriousness about buying a home. In most cases, earnest money acts as a deposit on the property you're looking to buy. It's a part of the contract we use here in Columbus, Ohio and it's important to review what Earnest Money is and how it works! The amount is negotiated and agreed upon by the Buyer and Seller. The Buyer typically pays the Earnest Money fee at the beginning of the contract. We have seen "EM" amounts from $500 - $10,000+. It depends on the home, the contract, the situation, etc.
#7: Broker Fees
Some Brokerages will charge a fee that is typically due at the time of closing. Each company/brokerage has their own terms and cost, so check with your real estate agent to see if they charge this fee! We have seen these charges range from $250-$400+.
The Anita Graves Group at Corcoran Global Living does NOT charge this fee!
#8: HOA Fees
If the home you are buying is part of an HOA, ask your real estate agent if there are fees you will need to pay when buying your home. Sometimes there is a transfer fee, reserve contribution or other fees that might be required of you as the Buyer when buying a home or condo in an HOA. It's hard to give you a range for this fee, as it really depends on many factors!
#9: Other Fees
Depending on the home you're buying, the current real estate market, and other factors, there may be other fees that you need to prepare for. Speak to your real estate agent to see if there are any other costs you may need to be prepared for.
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