In my experience, one of the least talked about hurdles to homeownership is the actual upfront cash needed to purchase a home. Even if you are asking for closing help (which the environment in our area currently supports) or even if you are using a 0% down loan, such as a VA loan, you will need cash to get to the settlement table.
Let’s start from the beginning. If you’ve read my previous blogs you are aware that your home search absolutely starts with speaking with a lender. At this point, the lender’s advice is 100% free, so why not capitalize on that? The next step is to speak with your agent (me). I do not charge up-front fees for a buyer consultation, to set up a search, or even tour homes. However, we will sign a buyer agency agreement so you know that I’m committed to working in your best interest, and I know you’ve committed to working with me. Once you’ve found the home of your dreams is when you’ll need to start checking that bank statement.
First, when you submit your offer, you’ll write a earnest money deposit check of approximately 1% of the offer price. The check will be deposited into an escrow account once the offer is accepted, so you have to have the money in your account for the check to clear. Yes, you can get that money back if the contract falls through and you are not at fault. Yes, the money will go towards your closing costs, but it is an upfront cost you must have available to start the process.
The second costly step in the process of home buying is a home inspection. Depending on the type, location and amenities of the home, you have a wide array of different inspections at your disposal. The structural/mechanical inspection is what is commonly referred to as the home inspection. In addition, there is radon, well, septic, wood destroying insects and chimney inspections.
The structural and mechanical inspection covers all the structural and mechanical systems in the home; foundation to roof and nearly everything in between. This cost varies based on inspector and size of the home starting from $300, but can reach $1,000. This is most commonly paid at the time of inspection by check, cash or credit card. You get what you pay for, so it isn’t something you want to skimp on and go with a discount service provider.
The Radon inspection is optional, but is highly recommended in certain areas. Radon is a colorless odorless gas that has been proven to cause lung cancer. Feel free to read until your hearts content at http://www.epa.gov/radon. This very important inspection ranges from $99-$250. You can also get home test kits to do yourself for under $50 from local hardware stores or online. However, these kits are not admissible to sellers to request a corrective action.
If your home has a larger lot or a more rural location, you’ll likely have a well and/or a septic system. These systems are obviously extremely important to the livability of your home, and can require very costly repairs. Septic inspections can vary on price from $250-$400 with an additional $200 if it requires pumping. There are two “inspections” involving the well. First is a water sampling and different loan types dictate the scope of this test. Sampling usually ranges from $100 to $250. Secondly is well yield. This is a test of how fast your well recovers after you’ve nearly drained it completely. This is only required in some areas and with some loans. This test ranges from $150 to $400.
If you thought the fireplace was lovely and a selling point for you, break out the checkbook, because it also requires an inspection. Liners and flues can be very costly and it’s important to know the current condition of the chimney. This inspection can range from $80-$250.
All of these inspections protect you and will save you money and anguish down the road. And there are many additional inspections you can elect, such as mold, air quality, environmental, radium, and/ or groundwater radon. If you’d like additional guidance on these options, we’d be happy to explain them in further detail.
The last upfront fee you will need to pay is the appraisal, which ranges from $350-500. The lender orders this for you to ensure that the price that has been negotiated is within the recent market conditions.
In summary, in a “normal” residential real estate transaction you’re looking at a best case scenario of $750 out of pocket before settlement. But on the high end with well, well yield, septic, radon and chimney…You could be looking at over $2300 before you even get to the settlement table. Have you set aside enough funds to get through these processes and get to the settlement table?