This is the fifth installment in an on-going series of posts dedicated to helping 1st Time Home Buyers successfully achieve their purchasing goals. We have been identifying and discussing, in chronological order, key events in the home buying process.

In our last discussion, we talked about “Exchanging Your Vows” - the importance of committing to your real estate agent and entering into a Buyer’s Agency Agreement. This time I want to take a moment and discuss:

“What does it cost to buy My First Home?”

One of the questions I am commonly asked by 1st Time Buyers is, “What “out-of-pocket” expenses do I need to plan for when buying a home? That’s a really great question. There are many loan programs out there today that require very little, if any, outlay of cash. But there are a couple of instances in the home-buying process where you will need to have some amount of “hard cash” available to succeed in your purchasing goals.

Depending on what kind of loan product you are using to purchase your house, you may need to bring in money at closing to cover some of your loan expenses. In some cases, you may be able to negotiate with the Sellers for them to pay a portion of your closing costs. As we discussed previously, your Mortgage Specialist is the one who is best equipped to provide you and your real estate agent with what your estimated closing costs will be, and then together, you can develop a successful purchasing strategy based on that information.

Aside from that, there are typically two additional expenses in a real estate transaction that you will need to pay for “out-of-pocket” (hard, cold ‘cash‘) prior to closing - your earnest money and the home inspection.

EARNEST MONEY

Earnest money accomplishes a number of things:

1) It conveys the seriousness of your intention to purchase the property.

2) In some instances, it can help to demonstrate your financial ability to satisfy the contract and strengthen your position as a solid, qualified buyer.

3) It provides remedial damages for the Seller in the event that you breach the contract (backing out of the contract for a reason not stipulated in the contract)

The actual amount of earnest money will vary with each particular market. In many instances, it will represent between 1 to 2 percent of your offer price. If you are involved in a competing, multiple bid situation, an increased amount of earnest money may make the difference in you being the successful bidder. If your offer is accepted, your earnest money will be deposited into a trust account or with the escrow company, shortly after acceptance. At closing, this money is then applied to your closing costs, or, if your closing costs have been covered, it is refunded to you. What I find helpful is to explain to my Buyers that Earnest Money is money you would normally be spending anyway, and is applied to your closing costs.

HOME INSPECTION

Some of the best and wisest money you can spend in a home purchase process is for the home inspection. Cut corners anywhere else you want, but not when it comes to your home inspection. A good, knowledgeable home inspector is worth every cent you pay them. You may have a relative or friend that has construction experience, but you owe it to yourself to use the services of an experienced, certified professional.

Inspection requirements may vary from state-to-state, but most involve a complete inspection and assessment of all structural, mechanical, electrical, and plumbing systems/components. In some states, a full pest inspection is included as part of the home inspection, or is conducted and paid for separately. Additional inspections may be required, depending on the property, such as septic or well. Sometimes these additional inspections are required by contract to be paid for by the Sellers or can be negotiated into the contract.

A thorough home inspection will cost approximately $300 to $400 and will take at least 2 hours to complete, depending on the size of the home. Ask your real estate agent to provide you with a list of local inspectors. Call each one and interview them. Ask them about their level of experience, the inspection fees they charge, what those fees cover, and what kind of documented report they provide at the conclusion of their inspection. Then you will be better equipped to make an intelligent, informed choice of which inspector will work for you.

The more informed you are, the better positioned you will be to successfully achieve Your 1st Time Home Buying Adventure!

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