- CLOSING COSTS
After my fiancé and I got engaged we decided to start looking to buy a home. Our first step was getting a realtor. We explained to him that we had x amount of money to put down on a house which allowed us just enough of a budget to look at homes of decent size in decent neighborhoods. After looking at a few homes our realtor explained to us everything home buying entails. He brought to our attention closing costs. Closing costs are fees paid at the closing of a real estate purchase. These costs are on top of your down payment. Prior to him telling us this, I had no clue that we had to have cash on hand to pay for a down payment AND closing costs. This is essentially money down the drain. This money doesn’t go toward your down payment or insurance or fixing up your home. Needless to say we had to hold off on purchasing a home because we did not have enough cash to pay for both our down payment and for up to 5% closing costs.
A home inspection is an examination of a home’s condition conducted by a certified inspector to make sure there aren’t any problems before you decide to purchase. Although inspections aren’t mandatory, it is highly recommended. Home inspections do cost money and come out of your own pocket, but if you are going to spend a substantial amount of money on a home you will definitely want to know if you are making a good investment. Without an inspection, you are risking unforeseen expenses such as needing to replace plumbing or needing a new roof. The following are the areas you can expect to be covered in an inspection:
- Electrical system
- Plumbing systems
- Cooling system
- Heating system
- Interior walls, ceilings, floors, windows, stairs, and doors
A property appraisal is an estimate of a property’s value based on various factors such as location, recent sales in same location, amenities, etc. The appraisal is conducted by a group of appraisers hired by the bank you are receiving the loan from. This is completed after you have already decided to purchase a home but before the contract goes through. The appraisal is done so that your mortgage lender knows whether or not the house you are buying is worth the amount you are willing to spend. They don’t care what you are willing to spend but if what you are spending is of market value. If the appraisal price for the home comes back lower than what you agreed to pay, the lender will deny your loan amount, which then gives you three options.
- You and the seller can renegotiate a lower sale price
- You increase your down payment to decrease your loan amount
- You cancel the home purchase
Escrow is a real estate term, which refers to money that is held by a third party until a contract is final. This is normally something that has to be agreed upon by both parties. When you make an offer on a home you can place the check in escrow so that the seller has no access to it until both you and the seller have a contract in place and have closed the deal. This way both the buyer and seller get what they want. The buyer shows you that they are serious by giving a deposit and the seller is not able to keep your money hostage. Once the deal is closed, the third party releases the funds to the seller.