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HOME BUYING COSTS YOU MUST BUDGET FOR
Budgeting home buying costs is certainly one of the biggest challenges when purchasing a home. Most first time home buyers think that they only have to come up with the down payment and that is absolutely wrong. Please see below some of the things you must take in consideration.
1. Earnest money deposit: This accompanies an offer to show the seller that the buyer is serious. There is no exact number as to how much the earnest money deposit should be. We usually recommend somewhere around 2% of the purchase price. However, keep in mind that you will need to make that deposit once the offer has been accepted. This is held by the Title Company or attorney handling the closing and is not an additional home buying cost as it is credited towards the buyer’s down payment at closing.
2. When putting less than 20% down payment, a home buyer will always be responsible for paying what we call the PMI (private mortgage insurance). The FHA loan tends to be a bit easier to qualify for as it requires less of a credit score comparing to a conventional loan. The rates on an FHA also tend to be lower. However, FHA loans require an upfront mortgage insurance payment of about 2% of the purchase price, which can be financed into the loan if you don’t reach the loan limit for FHA. Conventional loans you would just pay the mortgage insurance premium monthly.
3. Appraisals, surveys and inspections are based on the size and complexity of the home. Inspections can run from $300 on a 1500 sq.ft. property and up to $700+ on a 5000 sq.ft. property. Appraisals and surveys are usually between $400 to $600.
4. Home insurance prices can vary substantially. Work with an insurance broker who can shop around the rates unless you are willing to do so on your own. My best advice when it comes to getting the best rate for home insurance is to get multiple quotes from different providers. That is the best way as you can compare prices and coverages and choose what is the best for you. Usually that cost in South Florida is roughly 1.5% of the home's purchase price.
5. Closing costs is usually one of the biggest challenges for buyers to fully understand and most of them never heard of it. I always prefer to estimate it higher than lower, in order to avoid future surprises. Generally speaking, closing costs are usually around 3% of the purchase price. That includes all the closing fees, pre-paids, escrows (home insurance and taxes), stamps, etc. If necessary, you can ask the seller when you send an offer that they help you with the closing costs. The other option would be to ask your mortgage broker about the possibility of rolling some closing costs into the loan.
6. Moving expenses and other monthly bills can get quite expensive. Whether you are moving all the furniture from one house to another and paying for the moving costs, or purchasing all new furniture; you must take in consideration the moving expenses. In addition, monthly bills such as water & sewer, electric, internet, cable, etc, can add up fairly quickly.
7. A budget for home upgrades should always be discussed when choosing a home. Analyzing what will be necessary and a cost estimate will help you plan your finances in order to meet your goals according to your capabilities. This may include appliances, AC unit, paint color, floors, roof , layout change, etc. In adition to that, do not forget the smaller items which can also add up.
8. Be prepared for future increase in property taxes and insurance. Remember that those two costs have a tendency to increase overtime as property prices appreciate. It is important to budget a reasonable potential increase to your mortgage payment in the future.