How much money do I need to buy a home? is a question that is regularly asked from homebuyers, especially from first time homebuyers. It's a normal occurrence as costs tend change over time. In this article, we'll dive into a typical homebuyer's costs for purchasing a home.
In a previous article Buying a Home Zero Down Doesn't Mean Free it was discussed that zero down loans are often confused with zero cost to buyers for purchasing. Equating zero down to needing no funds to purchase isn't readily discussed within the industry and in real estate blogs. So let's break it down as those items are very different.
Besides downpayment, whether its a zero down loan or not, there are other costs incurred when buying a home.
Home Purchasing Costs Include:
- Earnest Money
- Home Inspection
- Closing Costs
What is Earnest Money? Earnest money is funds put up with an accepted purchase and sale contract, usually a personal check, money order, certified check, or wire. Those funds are held in a trust account at the closing company, typically the escrow firm, until closing. Upon closing, those funds are applied towards closing costs or refunded in the event a purchase and sale contract terminates. There are other scenarios but for sake of argument we'll not venture down that path.
How Much is Earnest Money? There is no set number for earnest money. It could be zero or $25,000; however, sellers and listing agents see earnest money as a piece of the buyer's qualification. The higher the earnest money, the more qualified the buyer is. It's perception and not an exact science. Though a higher earnest money gives sellers' confidence on the buyer's financial position. For the Snohomish County area, Rule of thumb is 1% of the purchase price.
How Much is a Home Inspection? According to the The Inspector Guys, who we recommend, the price break down is as follows:
- Up to 2,500 sf. $450.0
- 02,501 - 3,000 sf. $475.0
- 03,001 - 3,500 sf. $525.0
- 03,501 - 4,000 sf. $550.00
- 4,001 Sq Ft and up: call for a quote
How Much is a Residential Appraisal? Plan for a $1,000. Since the real estate market has picked up momentum and appraisals are in demand, we've seen appraisal prices increase. Every lender and appraiser is different though and setting aside a $1,000 will manage expectations.
What are Closing Costs? Closing costs are costs associated with the money needed for buyer's escrow services, title insurance, loan origination fee (if buyer is obtaining a loan), county fees to recording closing documents, HOA transfer fee (if applicable), and any other associated fees that may arise to close and record the buyer's property purchase. These are the types of costs buyer's request sellers to contribute to on their financing addendum.
How Much are Closing Costs? Let's be clear: Every situation is unique and costs will vary. However, it is common for closing costs to be around $7,800. If thinking about about a percentage of the sales price, the rule of thumb is 3% of sales price. But, as homes become more expensive the cost doesn't increase at the same rate. Always double check with the lender.
But what are the total costs?
Here is a scenario.
Purchasing a $300,000 to $400,000 home in Marysville a buyer will need approximately $11,000 - $12,500 to purchase.
- Purchase Price of $300,000, 1 % Earnest Money of $3,000, Home Inspection price based on a 1,694 sf average is $450 and Closing Costs of $7,800 = $11,250.
- Purchase Price of $400,000, 1 % Earnest Money of $4,000, Home Inspection price based on a 1,694 sf average is $450 and Closing Costs of $7,800 = $12,250.
If a buyer's loan requires a downpayment then that downpayment will be added to those cost figures.
- A $300,000 using a FHA 3.5% downpayment is: $11,250 + $10,500 = $21,750
- A $400,000 using a FHA 3.5% downpayment is: $12,250 + $14,425 = $26,678
In addition, there could be additional costs that may arise during a purchase not covered above. These can be items like:
- Water Tests
- Structural Inspections
- Lead Based Paint Test
- Moving Expenses
- Homeowner's Insurance
When qualifying for a home loan and planning a home purchase, its best to identify and be forthcoming with the professionals hired to help.
We'd like to hear your thoughts on the costs to purchase a home and if there are questions that we can answer.