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There are many costs home buyers should know about when buying a house. Do not think that your down payment is all that you need to plan for! I’ve broken out all the costs associated with buying a home. But, if knowing the nitty gritty details is not your thing, I always tell my buyer clients to plan on paying around 3% of the total purchase price of the home towards closing & pre-paid costs. So, if you are buying a $300,000 home, plan on spending about $9,000 in pre-paid & closing costs PLUS your down payment.
Here’s the breakout of costs a home buyer should know about when buying a home:
Up-Front Costs: Before you even make it to the closing table, there are expenses you will have to pay out of pocket. These include:
- Earnest Money – This is money that you will need to plan to send over into escrow as soon as you go under contract for a home. In GA, the typical earnest money is 1% of the purchase price. Earnest money is a way to show the seller you are serious about buying the house and it’s an agreed amount that if you would breach the sales contract, the seller gets to keep the earnest money. However, your real estate agent should help to negotiate contingencies in the contract to help protect your earnest money for cases such as financing issues, appraisal issues, or home repair issues. Keep in mind that as long as you end up buying the house, the earnest money you have held in escrow will be applied to your down payment at closing.
- Inspection Fee – ($400-$700) I always recommend you pay to have a professional inspector come and inspect the home for issues. The cost depends on the size and age of the home, but generally it ranges between $400-$700. This is a sunk cost no matter whether you buy the home or not.
- Termite/Pest Inspection – ($50-optional) This is an optional expense (in most cases) but not a bad idea to get this in conjunction with your inspection. It usually costs around $50.
- Appraisal Fee – ($450-$500) This is required by your lender. It is something your lender will order but will charge you for immediately. It’s a sunk cost whether or not you actually end up buying the home. It is usually around $450-$500.
- Survey – ($500 – optional) This is an optional expense which costs around $500. Many homeowners in Atlanta do not do surveys anymore but in my opinion, if you are buying a single-family home, it’s one expense that is if anything, peace of mind. I think it is a good thing to know where your boundary lines of your home are and ensure that there is nothing on the property that is overstepping boundaries.
Closing Costs – The closing costs consist of all the fees charged by the title and lender plus county/state taxes. Closing costs include:
- Title Company Preparation – ($450-$750) The title company of course will charge a fee to prepare all the closing documents and record title.
- Lender Fees ($1,000) – The lender will charge a loan preparation fee and this really can vary depending on the lender and what type of loan package they provide.
- Title Insurance ($1,500) – Both lender and homeowner title insurance add up to roughly $1,500.
- Taxes/Miscellaneous ($1,200) – There are some minor miscellaneous charges (such as a recording fee to the county’s records) and of course the county/state want a piece of the pie by charging an intangible and transfer tax.
Pre-paid Items –
Pre-paid items can easily be wrapped in with the term closing costs. However, closing costs are fees that are being paid out to the lender, title company, and taxes to the county/state. Pre-paid items are costs that will serve to pay off an expense at a later date. Here are the pre-paid items a home buyer will incur:
- Home Insurance – ($1,500) The amount can vary depending on the company a home buyer chooses and also the size & age of the home. I’d say the average cost is about $1,500 for one year of home insurance. A lender usually requires a homebuyer to pay one year of home insurance in advance.
- Interest – ($100-$1000+) The good news is that when you buy a home, your first monthly mortgage payment won’t be until 2 months later! (For example, if you buy a home in January, your first mortgage payment is due March 1st). However, your lender will start collecting interest on the day you sign your closing documents. So from the time you close until the first mortgage payment, you will owe interest on your loan. This amount is pre-paid to the lender at closing. The total amount can really vary depending on the amount of your loan, interest rate, and the # of days you have between the closing date and 1st mortgage payment.
- Property Taxes – ($300-$1000+) Typically, a lender will require that you have an escrow account that you contribute monthly payments towards your property taxes. So each month, you would essentially be paying 1/12 of the total property tax bill into a separate savings account and then when the property tax bill comes due, your lender will pay the bill using the money saved up in the escrow account. A lender will require a certain amount of money to be deposited in that escrow account at closing. This amount will vary depending on when you close on the home and when your tax bill is due.
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