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Cost to Buying a Home in 2020 Explained.

I created this Blog to help you understand the breakdown of the cost associated when buying a home. No matter if this is for your first home or your forever home, the items you need to be prepared to pay for will be about the same.

#1 - Down Payment

The most obvious to this list of cost is going to be your down payment. Depending on your loan type will determine the amount of down payment you will need. For example, conventional loans you would be looking at a minimum of 3% of the purchase price as down payment. To avoid PMI (Private Mortgage Insurance), you would want to put down a minimum of 20%. For this example, lets say you put 3% down on $100,000 house - your looking at $3,000.


If your loan is FHA, you are looking at a down payment of about 3.5% of the purchase price. In this example $100,000 house = $3,500 in down payment.


Now, in today's financing there are loan options that can help you get 0% down loans.


The down payment is due on your closing day, the day you sign all of your loan documents and receive your keys.


TIP: Be sure to talk with your lender about the current guidelines & regulations, but the Down Payment CAN be given to you in the form of a gift from a relative.

#2 - Closing Cost

Closing cost are next on the list, and these cost are a combination of taxes, lender fees, perorations of your home owners insurance, and other items.


The total of your closing cost is usually about 3% of your purchase price. For example, on a $100,000 home, your closing cost would be $3,000. Now, these cost traditionally can be asked to be paid by the seller in your offer. Depending on what your offer is, and the motivation behind that offer, lets say the seller agrees to pay $1,500 on your behalf. That means, you will bring the remaining $1,500 on closing day.


TIP: If you are not able to get all of your closing cost paid by the seller and you are a little short on cash, talk with your lender to see if they can offer you a "lender credit" on these closing cost. Just keep in mind if they offer this, they may increase your interest rate or add it to the back end of your loan and that is always not the best so just check with them so you know the options.

#3 - Earnest Money

An earnest money deposit, is a good faith deposit. It lets the seller know how motivated you are in purchasing the home.


The total cost is negotiable, but the average is .5% - 2% of the purchase price of the home. For example, on $100,000 house you can expect to pay $500-$2,000 up front for your earnest money deposit. This earnest money deposit, will need to come from your account. This can not be a gift from family or be used on a credit card. Most likely your lender will ask for bank statements to see where the earnest money cleared your account.


The earnest money is due typically within 2 days after the seller accepts your offer and your under contract. So before you even start looking at homes, be sure your earnest money is in your account ready to go.


The earnest money will be a credit back to you at closing off of your closing cost. Learn more about earnest money in another post here.



#4 Home Inspection

After your under contract, you will have the option of having a home inspection. While this is optional, it is highly recommended.


The home inspection is where an inspector that you hire goes out to the house and checks the condition of the property and gives you a report showing all the details of every item inspected with details and recommendations listing any areas of concern.


The cost of the inspection depends on the size of the house. For example a 3 bedroom home may cost between $350-400 and a 5+ bedroom home may cost between $500-$800. You pay this up-front the day your inspector goes out to the property. The inspection is a Service, you will not receive the money back if you decide to purchase or not purchase the home.


Be sure to ask your agent for references of local home inspectors in your area so you can call around and get pricing, details, check reviews, etc.



#5 Home Appraisal

After your inspection is complete and you are moving forward with the purchase, your lender will talk to you about ordering the appraisal. Side note, when your lender is talking to you about this appraisal in this stage of the game, odds are your loan conditions have been approved and you are pretty deep into your loan process at this point.


The appraiser (like the inspector) will go out to the house and check the value of the property. The appraisal report will be given to you, the seller, and the lender.


The appraiser is chosen by your lender, you don't have the option to call around and get the best deal, check reviews or anything like that. With the appraiser, its whoever your lender decides to hire.


The cost of the appraisal also depends on the size of the home. For example a 3 bedroom home may cost between $450-$550 and a 5+ bedroom home may cost between $550-$800.


In most cases, you pay this amount upfront to your lender, and they in turn pay the appraiser they hire.


This amount of money you pay, will be a credit back to you at closing off of your closing cost. However, if for some reason you do not close on the house, you will not receive this money back as a refund or anything along those lines.


#6 Reserve Funds

If you are receiving a loan for financing your home, your lender in most cases will like you see that you have some "cushion money" that they refer to as reserves.


The reason for this would be an example, your AC breaks 2 months after closing, they like to see that you have funds available if you have an emergency like this come up.


The traditional amount they like to see is AT LEAST 2 months of what your PITI (principal, interest, taxes, and insurance), in your account. For example, lets say your total PITI is $1,000 a month - they would want to see at least $2,000 in your account.


NOTE: This "reserve" fund does not need to be a deposit you made in your account last payday. This is "extra" money you have had in your account at least 2 months PRIOR to applying for a loan. What I mean by this is, lets say you apply for a loan March 1st - one of the required documents when applying for a loan are 2 months of bank statements. Therefore, you would be giving them all of January and all of February bank statements. You need to be able to show that $2,000 was in there in January & February "untouched", therefore you would have wanted to deposit that $2,000 in December.


Now, some lenders (be sure to ask yours) will be able to use investment funds as your "reserve" meaning it may be money you have available in your 401K or other investment that you don't have in your checking/saving account BUT you do have it available in an account that you could pull from if you needed it.


Tip: Your first mortgage payment is not due for a full 30 days after you close on the home, for example if you close November 3rd, your first mortgage payment will not be due until January 1st, so while you are coming up with a some money on the front end to buy a home, you get that little bit of break before your first payment is due.


Final Thoughts

Hopefully this will help you get prepared for what you can expect when buying your next new home. If your not ready yet, that's okay - this will help give you the idea of goals you want to reach so that you can make that home purchase! My goal is to help you achieve all of your goals in life & in real estate. Be sure to check out my other blogs and resources to help you, or please share this content with someone if you think it could help them. Until the next one, stay blessed!
 

Melissa English is a Real Estate Agent and Investor in the North Georgia market with hundreds of closed transactions and nearly a decade of experience in Real Estate. She is also the founder of GeorgiaKey.com - a real estate investing company that specializes in purchasing property offering quick closings in as-is condition.

 

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