One of the most common questions that we are asked is how much money a prospective home buyer needs to have on-hand before purchasing a home. The actual down payment can vary anywhere from 3% down up to 20% or more depending on what program a buyer decides to go with.
Here we take a closer look at what you as a buyer should expect when you go through the process of buying a home. These are the typical types of fees to expect at closing. Below is a breakdown of a sample set of closing costs; we will also look at each item individually.
Purchase price = $400,000
The amount you will borrow (20% down) = $320,000
There are several mortgage options that allow you to put more or less down. See the section below called Common Mortgage Options for more details on what is available.
Breakdown of Fees & Costs:
|Attorney:(PNS, Title, Closing, Misc)||$1,000|
|Title Insurance Buyer:||$975|
|Title Insurance Lender:||$800|
|Total Closing Costs||$4,989|
|Tax 4 Months: (Varies)||$1,400|
|Insurance 1 Year: (Typically paid prior to closing)||$1,000|
*Note: these costs are estimates only and will vary by town, lender, property, and which month and quarter you close among other factors.
Total Closing Costs and Prepaids: $8,089
20% Down Payment = $80,000 (varies depending on down payment option)
Total Money Needed = $88,089
Common Mortgage Options
When you want to apply for a mortgage loan to purchase a home you certainly don’t need to have 20% down. There are many options available depending on your needs. Many mortgage loans have low and no down payment options.
Click the following links for more information on these common types of mortgages and if you are looking for even more options click here.
|Down Payment Options||Amount Needed for a $400,000 Home|
Lender & Attorney Costs
The first item on this list is the Lender Fee. These are fees that lenders charge you for doing the work that they do in terms of the processing and approving the loan.
This is a professional examination of your home done by a licensed appraiser who specializes in examining homes and determining a value.
This is a fee paid to a licensed home inspector to come in and evaluate the property for potential problems with such things as building codes, along with other issues the property may have in terms of needed repairs. It is important to get this done so that you are not surprised by costly repairs later on, and your lender will want to make sure there are no safety hazards which could result in a lawsuit if someone falls or gets hurt on your property. This is paid at the time of the inspection directly to the inspector.
As Anthony Lamacchia describes in this blog, it is very important to have a good real estate attorney when buying a home. Buying a home is usually the biggest financial purchase of one’s life, so spending an extra $700 to $1,500 is money very well spent. A good attorney will make sure that all of the legal documentation is clear and correct, and that all of the bases have been covered, and things which can help protect you are in place. Their work includes making sure that the title to your home is clear. The attorney will also handle negotiating the Purchase & Sale agreement that outlines exactly what is being bought and sold and has clauses that protect you as the buyer.
If you obtain a mortgage you will be required to purchase Title Insurance for the bank. This will protect you if something comes up later on which was not, for whatever reason, found during the attorney’s title examination. This can happen because of a problem with the records which are held at the Registry of Deeds or similar office in your area, or because something comes up which was not previously known about. While rare, this can and has happened, so it is very important to make sure that the money you put into your house is not jeopardized. There is a reason why the mortgage lender will most likely require it, after all, because they understand just how critical protecting their investment is as well. As a buyer, you will also have the option to purchase owner’s title insurance as well which protects you from the same potential issues. We strongly suggest you consider this, it is in your best interest.
The Registry of Deeds will charge a recording fee. This fee is simply the cost you pay to have your new deed, mortgage, and all associated paperwork, officially entered into the permanent records of the city, town, and/or county in which you live, so that you are the legal owner of record of the property.
All prepaid costs can vary depending on when you close in the month for the mortgage interest and when you close in a quarter for the real estate taxes.
When a buyer buys a home the mortgage company requires them to pay the interest on the day of closing until the end of the current month. Then interest is paid in arrears thereafter. For example, if someone closes on February 15th they would have to pay the interest on the loan until February 28th, and then their first mortgage payment will be April 1st.
Pre-Paid Real Estate Taxes:
Taxes are paid in a similar fashion to the pre-paid interest except they are paid quarterly. So if a buyer closes on February 15th they would typically have to pay the taxes until March 31st which is the end of the first quarter.
Finally, the last item is the Homeowners insurance for the property, which covers major losses and other specific damage cases as outlined by the policy which you choose. Lenders will require this to protect their investment in the form of the loan they made to you for the mortgage, but it’s really in your best interests to have for obvious reasons as well. In most cases, the insurance company requires up-front payment for the first year, and it is typically paid prior to closing directly to the insurance company.
As you can see there are many costs to factor in when buying a home, and knowing how much cash you will need to have on hand when it comes time to actually close the deal is critical. If you have any questions, feel free to contact one of our Buyer’s Agents at 855-510-7653, email us at firstname.lastname@example.org, or fill out the form to have someone contact you today.
*This is an update to a previous blog.
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