In today’s market it will be very difficult to find a seller willing to pay very much toward selling their home. There are simply too many buyers willing to cover the costs. One of the things that most buyers (especially first time buyers) are unaware of is the up-front costs associated with purchasing a home.
In order for you to be a well-informed buyer there are a few costs that you should save up for and plan on before looking. While being pre-qualified is essential right now (sellers aren’t going to accept an offer that says pending financing) a buyer can become overwhelmed with all of the paperwork and costs coming in shortly order after the offer is accepted.
Along with the initial offer be prepared to have an earnest money deposit. This is usually in the form of a check somewhere between $500-1000. If the offer is accepted the check will be deposited in an earnest money account and deducted from the total at closing, if the offer is not accepted the check will be returned to the buyer if it was delivered with the offer. Often times it will be delivered after the offer is accepted.
Sellers are receiving multiple offers right now and will be unlikely to accept an offer that asks them to pay the closing costs for the buyer. Closing costs will vary depending on the type of loan and the cost of the house they are purchasing. Typically you can expect to pay somewhere in the neighborhood of 3.5%. For example if you are planning on purchasing a home at $200,000 the closing costs could be in the neighborhood of $7,000. Often times the lender will allow you to roll this into the loan and may charge an extra point toward the loan. This would be a question to ask the lender when you are getting pre-qualified.
Buyers can choose to purchase a home as-is but I always recommend getting a home inspection. A home inspection averages between $400-600 but will be an in-depth look at the things that need fixed. As a buyer you can then negotiate with the seller what items to fix or to discount the final sales price or even to include extra money for repairs at closing. There are many options but without the home inspection you have no way of knowing what shape the roof or HVAC system is in and those could be expensive items to overlook.
All home loans are going to require an appraisal. A lender is not going to give you $300,000 for home that appraises at $250,000. If your offer is more than the appraisal then you will either need to pay the difference in cash or walk away from the deal. The cost of an appraisal may vary depending on the size of the home but the average is going to be $400-600.
Many loans will require a termite inspection. If you are using a VA loan then you are not allowed to purchase the termite inspection. Termite inspections cost anywhere from $20-35. There are many companies that can perform this service and can have it done in short order.
The last expense I want to discuss is a home warranty. There was a time that sellers would pay for this, some still do but it’s not a given anymore. A home warranty can give you peace of mind for the first year of owning your new home. Depending on the type of home warranty you purchase you can have all of your major appliances covered for repairs. This can include dishwashers, stoves, HVAC, and many more appliances that could malfunction. Depending on the company and type of warranty the cost could be anywhere from $350-600 but is still cheaper than paying to replace a broken air conditioner.
In addition to all of these costs it is worth mentioning that the closing process is time sensitive. Sellers are going to want to close in 30 days and the contracts will have time tables built in. You may have 5 days to deliver the earnest money check to the listing broker’s office. A home inspection should be done as quickly as possible, within a week is preferred but it may not be possible to get an inspector out for 10-14 days. The appraisal also needs to be done within 14 days or so and your lender will tell you who to use for the appraisal in most cases. Termite inspections can usually be scheduled and completed in a few days. Many companies will allow these costs to be paid at closing and whatever closing company you choose will give you an amount that is owed and give out the money to all the vendors involved.