If you are thinking about buying your first home, you've probably already been thinking about saving for the down payment. But what about all of the other costs associated with your purchase?
We are finding that prospective buyers are not financially knowledgeable and, therefore, not prepared for all of the costs associated with buying a home. And, as always, we believe that an educated customer is our best consumer. By being educated, you will avoid frustration and have a smooth, enjoyable transaction.
Our goal is not to scare you; it is to prepare you. Homeownership is a wonderful goal and some of you may be ready now while others of you may have to wait a few years. Either way, we will guide you throught the process.
Let's take a closer look.
Besides the Down Payment, 7 Additional Costs Associated With Buying a Home
1. The elephant in the room: Settlement/Closing Costs
First time buyers are hearing everywhere that, for many loan programs, they can get the seller to pay most of their settlement costs. That means that the buyer will come up with their down payment but the buyer, during the negotiating phase of the transaction, will ask the sellers to pay the remainder of their closing costs and settlement fees.
Well, here is the elephant in the room... Just because a seller can pay your closing costs does not mean that they will and prospective buyers need to be prepared for the seller to say "no."
Why won't a seller pay your closing costs?
Some sellers just don't want to. They may have the ability to contribute, meaning that they have equity in their homes, but they may not have an agent who helps explain how a contribution for you will affect them. The sellers may be "old school" and not understand how to make a contribution win/win for both parties. If their agent does not help them understand the pros and cons, sellers will take the easiest path to their decision and probably say "no."
Some sellers may want to help you but just can't afford it. They don't have enough equity in their home to make their move and help you at the same time. In order to help you, they would have to raise their price to offset their contribution and the home may not appraise for this increased price. In addition, raising the price will increase the amount that you, the buyer, finance and will increase the seller's taxes and closing costs. Sometimes the numbers just don't work.
So what does this mean to you? If the seller won't or can't pay your closing costs, then those costs are going to fall back to you. In order to have as many options as possible and to have leverage during the negotiating phase of the transaction, please save more money. This way you are not dependent on just those sellers who will contribute to your closing costs. You will be able to look at more homes and negotiate strongly on price and other terms that may be important for you.
What is the best way to have a reality check? Speak to a lender now about total costs needed to close. Look at the worst case scenario, i.e., if a seller does not pay any closing costs, what is the total money that you will need to have at the closing table? We would rather you be prepared to receive nothing or just a partial contribution as opposed to expecting that you will receive a total contribution. By managing your expectations, you will greatly reduce your stress and frustration and we can use our negotiating skills to get you the best overall deal, not completely dependent on closing cost help.
Some buyers can buy now and some can't. And that is ok. That is reality. If the numbers work for you now, great. We are here to help. If not, save some money, work with a lender or financial planner, and start preparing for your purchase of the future. We, at Yaffe Real Estate, are long term thinkers and are here to help you every step of the way. Perhaps renting for a few more years makes sense for you. Great. As opposed to other real estate companies, we do not think that all buyers should buy now. Some need to save, some need to get better educated about money and some need to get more job stability. Financial education matters. Let's start today.
2. Earnest money deposit
When you make an offer on a home, you will write an earnest money deposit check to show your good faith investment in the contract.
Once your offer is accepted, this check will be deposited, usually in either the Listing Broker's escrow account or in the Buyer's Broker's escrow account. This amount varies but can be anywhere from $1000 - $20,000, depending on your finances, the price of the home, the competitiveness of the negotiating situation and other circumstances.
A good Buyer's agent (hopefully you have hired someone from our team) will guide you through this phase of your offer.
3. Home inspections
Once your contract has been ratified, it is now time to schedule your inspections. A home inspection, a radon inspection, well yield, bacteriological, septic and other inspections are common and protect your investment in your new home.
You want to go into your purchase with your eyes wide open and have all of the facts before you go to closing. Hiring experts is important. Don't go for the cheapest inspector in town; go for the inspectors that have the most experience and the best references.
Your Yaffe Buyer's agent will assist you with this phase of your transaction. You will pay these inspectors at the time of the inspection, regardless of whether your transaction goes to closing or not so you do need to have these funds liquid and available.
4. Moving Expenses
Moving is expensive and you want to price this out as soon as possible so that you are not completely shocked. Once again, if you have valuables, you want to choose a mover with experience and excellent references and not the cheapest guy in town.
We hear horror stories about movers and, depending on the value of your personal items, you want to choose a mover that cares about you and your belongings and has a track record to prove it.
5. Aesthetic updates
Depending on the results of your home inspection, the Seller will probably repair items that are in disrepair such as a nonworking HVAC, a leaking pipe, or a broken appliance.
They will generally not repair aesthetic items that were visible at the time of your walk through of the home. What you see is what you get. So if you do not like the paint, the carpet or the landscaping, you need to either make these changes yourself or budget to hire someone to help you.
Hiring someone to paint an empty room, i.e., before you move in, is usually cheaper than hiring someone after all of your belongings are there. So you want to schedule all of your aesthetic updates as soon as possible.
Once again, a good Buyer's agent should be able to assist you with recommendations and coordination. You might even want to meet with a Home Stager for ideas.
6. Murphy's Law
Something will break after closing, I promise. It always does. Yes, it was working during the home inspection and everything was fine but, within 30 days of closing, things will break and you need to have a cushion.
Perhaps your buyer's agent negotiated a home warranty with your purchase and some of these items are covered. A home warranty is great for purchases (ask the Seller to pay for it) but not great for rental properties.
Regardless of whether you have a warranty or not, you need a financial cushion to cover repairs, aesthetic updates, furniture, and more.
If you moved from an apartment, you probably never owned lawn equipment, deck furniture, nice kitchen appliances, bathroom items, etc. In an apartment, you may not have had the desire to upgrade the builder grade items but now, in your new home, you want to make the home yours and this usually requires a few expensive trips to Home Depot and Lowe's.
7. Personalizing your home
Now that you are a homeowner, you usually will feel a stronger emotional connection to your home and you will want to put your stamp on it. Buying items that feel right to you will bring you a lot of enjoyment and comfort as you prepare to stay in your home for several years, as opposed to being a renter and moving every year. If you are prepared and have a financial cushion, then those trips to Home Goods and Target won't be stressful. Enjoy personalizing your home and making it your own.
These are just a few items that we we want to educate our buyers on. There are more. Give us a call to discuss your personal situation. No pressure, I promise. We are here to help.