Home Buyers

Can You Afford to Buy a Home?

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If you are thinking of buying a home, one of your main concerns maybe “can I afford it?” We want to help you budget for your home purchase – let us walk you through the upfront costs and fees you will inquire, aside from the down payment which can vary from 0-20%.

Let’s start out with what you DON’T have to pay for: real estate commissions. The commission for your real estate professional is paid for by the seller. Hallelujah! This saves you about 3% of the sales price and you get to use a real estate agent free of charge so take advantage!

Earnest Money Deposit or EMD

An earnest money deposit check is like a security deposit on your home purchase. It is usually 1% of the sales price of the home and a copy of it is submitted along with your offer to purchase a home. This shows the seller that you’re a serious buyer and your good faith in purchasing their home. Once you’re under contract, the check is deposited and held in escrow by your title company until settlement. The deposit is used towards your down payment at settlement, so it’s not really a fee! You definitely want to be prepared by having this money saved up prior to beginning your home search.

Home Inspection & Appraisal

If you choose to have a home inspection, which we highly recommend, this will run you between $300-600 depending on the size of the home. It is important to get a home inspection to check the condition of the home and determine if there are any safety issues that will need to be addressed.

An appraisal will be required by your lender if you’re financing your home purchase. Your lender will order the appraisal for you to determine the fair market value of your home. Like a home inspection, the appraisal will cost between $300-600 depending on the size of the home.

Title Fees

Title fees usually run between .5%-1% of sales price for the services they provide – which include a title search, title insurance and transfer taxes which will all be paid at settlement. Your real estate agent will be able to refer you to reputable & affordable title companies that they’ve used in the past.

Your title company will provide a title search of the home you’re purchasing – a title search is a thorough investigation of the property records ensuring that the seller is in fact the owner and that there aren’t any other parties that have ownership interest in the home.  The title company will then issue you title insurance for your home that will protect you from any future claims or lawsuits based on title ownership. Your lender will also require lender’s title insurance.

Pre-paid Items

At settlement, a series of prepaid costs are collected for fees associated with real estate taxes and homeowner’s insurance. Your monthly mortgage will then consist of principal + interest (paid to lender), taxes (paid to the county) and insurance (paid to your insurance provider) all wrapped up in one easy payment (instead of making 3 payments to 3 separate entities).

Have you ever heard a home buyer talk about buying down the interest on their loan? They are probably referring to prepaid interest – this is a fee that is charged to a buyer to reduce their interest rate. Reducing your interest rate can save you thousands over the life of your loan so this is something many buyers elect to do. It is not required and depending on your situation this may not be the best option for you so make sure to discuss all scenarios with your lender to ensure you’re getting the most for your money!

So you see, there IS a reason why we suggest you consult with a real estate agent and lender before going to look at homes! You want to “have all your ducks in a row” as they say. All in all, buying a home will cost you about 2-5% of the sales price. If you would like to run numbers in real life terms, download the MRIS Close It app! It works as a plug and play app that will outline the fees in real time based on your scenario. Check it out here!

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