If you’ve been following the news and are in the market to purchase a home, you’ve likely heard you’ll need to put 20 percent down and apply with a solid credit score. That’s the conventional thinking, but loans are being made with as little as 3.5 percent up to 7 percent to 10 percent, depending on the product.
Those expenses you are expecting to incur and that’s why you’ve been saving-up and cleaning-up your credit, so you get the best interest rate and keep your monthly payment down. However, there are other expenses you ought to take into consideration because they are not optional. These too, will be coming out of your wallet, and it’s best to get in-the-know about what they will cost.
Knowing the Property Purchase Process
Understand that lenders are operating under stricter financing practices today and that these entities are being as proactive as possible to reduce exposure to risk. This is where the down payment comes-in and, why the lender carefully reviews your application and runs a credit check. However, that’s not the only due diligence which the lender will perform.
“True, almost everything we buy has a hidden cost. You buy a toothbrush for a couple bucks, and since you’ll have to purchase toothpaste, the ownership cost of a toothbrush is more than $2 – especially if you throw in a toothbrush holder. Obviously, the hidden costs of buying a house are far more complex. And if you aren’t prepared for them, you may come away from the experience feeling as if you’ve been kicked in the teeth.” —US News and World Report
The lender will have the property appraised, to ensure the loan in commensurate with the value of the property and the purchase price. In addition, usually a couple to few days before the closing, your lender will run a “soft” credit check on you to see if you’ve opened new lines of credit, liking purchasing furniture.
Plan for these Hidden Home Buying Costs
Once everything is in place, the appraisal clears the transaction to move forward, that’s where you’ll incur more expenses. These are hidden home buying costs which most people do not consider early enough:
- Earnest deposit. Your earnest money is to demonstrate your commitment to the purchase and is actually part of your down payment. It generally is 1 percent of the purchase price or $1,000.
- Home and pest inspections. These generally cost a few hundred dollars each and aren’t usually outright required by the lender, but they will help you to avoid unpleasant and costly surprises.
- Repairs and improvements. Practically no home exists in a problem-free state and as the new owner, you’ll likely want to make some improvements right away and take care of any little repairs.
- Moving costs. This can cost anywhere from a couple hundred dollars to thousands, depending on the amount and the distance. You should get at least three estimates and read each document carefully.
All this, not to mention, closing costs, which can range between 2 percent and 5 percent of the purchase price. This includes the loan origination fee, attorney’s fees, title search and insurance, recording and underwriting fees, the appraisal, and more.