COSTS OF BUYING A HOME
DOWN PAYMENT
A down payment is the cash you pay upfront to purchase your home.
This is by far the largest chunk of money you’ll need to come up with.
Typically down payments range from 3%-20% of the price of the house.
Your percentage down will be dictated by 1) what you’re able to save and 2) the type of loan you qualify for.
Though there are some State/Federal programs that can help some buyers purchase without a down payment that is definitely not the norm.
Why you ask?
Well it’s called having skin in the game.
A lender wants you to at least carry a bit of the risk when handing you hundreds of thousands of dollars. Moreover, it’s also an indicator that you’re financially responsible enough to save up for such a major life milestone.
EARNEST MONEY
Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home.
In the Pacific Northwest it is typical for this to be 1-2% of the purchase price.
When a buyer decides to purchase a home from a seller, both parties enter into a contract. The contract doesn't obligate the buyer to purchase the home but it does ensure the seller takes the house off the market while it's inspected and appraised.
When a seller takes their home off the market they’re taking a big risk, because if you don’t by their home when they put it back up for sale it is often seen as less valuable by future buyers (even though there may be no reason for such perception).
Once deposited, the funds are typically held in an escrow account until closing, at which time the deposit is applied to the buyer's down payment and closing costs.
INSPECTIONS
Inspections confirm the functionality of the home or to say it another way… they make sure you know what works, doesn’t work, is safe, and what isn’t safe in the home. It’s wise to set aside $1000 for these, but my clients typically spend between $650-750 on them.
You can learn more about the types of inspections we recommend in the Pacific Northwest here.
APPRAISAL FEE
An appraisal is a third party valuation of the property you’re hoping to buy. In the Portland Metro area you can expect to pay between $500-1000 and depending on your lender this might be requested upfront versus being built into the closing costs… so make sure you ask about it!
These costs can increase significantly if you're buying in a rural area or if the property is unique enough to not have many comparable properties for the appraiser to use in their analysis.
Closing costs refer to the charges and fees that are paid when a house purchase is finalized.
Both buyers and sellers pay closing costs to the service providers who help facilitate the transaction.
Typically, the buyer's costs include mortgage insurance, homeowner's insurance, appraisal fees and property taxes, while the seller covers ownership transfer fees and pays a commission to their real estate agent.
These can be between 1-3% of the total purchase price and are the most over looked by potential buyers.
In the right circumstances I am often able to negotiate the seller into paying some if not all of my clients closing costs. It’s not guaranteed, but its definitely always a goal.