Many potential home buyers begin with the mistaken impression that a down payment is all they need to worry about. Unfortunately, that is not the case. There are other costs involved that, in many cases, must be paid out-of-pocket before or at the time that the purchase closing is held. Following are some of the costs that may or may not be required.
Good Faith Deposit
A good faith deposit is an amount of money that is paid at the time that you make an offer. The deposit indicates to the seller that you are serious about purchasing the home. The amount of your deposit will vary depending on the purchase price of the home. If the purchase is completed, your deposit will be subtracted from the total cost of the home at the time of closing.
Home Inspection
While a general home inspection is not required in the United States, it is a good practice that your real estate agent will recommend. Along with a general home inspection, you may hire specialized inspectors, including termite, environmental, and electrical if the need arises. Note that many states have laws that require a pest inspection prior to the sale of a home. The goal is to protect you from potentially purchasing a home that will end up costing you a lot of money to repair. The average cost of a home inspection is approximately $400. The inspection results may show that the home has plumbing leaks that need to be handled by a residential plumber or roof damages that require professional roofing services. Contact a skilled Leicester plumber for all plumbing needs.
Appraisal
Your lender will require an appraisal of the home to ensure that it is valued at a minimum of the amount that they are lending you. A professional, licensed appraiser must be hired to give his or her expert opinion as to the value of the home. In most cases, you will be required to pay for that service out-of-pocket. The average cost of an appraisal $300 to $400.
Homeowners Insurance
Your lender will require that you carry homeowners insurance on the home for the duration of your mortgage. The insurance is intended to protect the lender against losing its collateral, your home, in the event of a disaster, such as a fire. The cost will depend on your state laws regarding insurance underwriting, the value of the property and other variables.
Closing Costs
Closing costs are fees that must be paid at the time of closing for the lender and any third parties that were involved in the purchase process. Those fees can include loan origination fees, attorney fees, inspection fees, title insurance and title search fees, and recording fees that are paid to the city or county for recording the new deed.
Lenders are required by law to give you a good faith estimate of what the closing costs will be within three days of your application for the loan. That estimate is not the final costs, but does give you an idea of how much you will have to pay. Within a day of your closing, the lender should give you a settlement statement that outlines the actual closing costs. Do not hesitate to question the lender if there are any costs you do not understand or do not agree with. Some of those fees may be negotiable.
Some lenders will allow the closing costs to be added to the mortgage. While it may help your pocket at the time, it will cost you more money in the long-term because you will end up paying interest over the life of your mortgage loan.
Down Payment
Your down payment will be set by the lender, but is generally around three to five percent of the purchase price. For example, if you are purchasing a home for $80,000, your down payment may be in the area of $2,400 to $4,000. You must pay the minimum at the time of closing, but may pay more than that amount if you desire.
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