To buy a house, you need cash for a down payment… and then some
One of the biggest shocks of buying a home is finding out that you need way more out of pocket cash to close on a house than just a down payment. It’s hard enough to “save for the down payment on your” home, only to find out that you need more — often a lot more — in order to complete the transaction.
If you are thinking to buy a home anytime soon, it is a good idea to find out what kinds of cash reserves are required and what they will be used for.
Down payment
The biggest and most important expense to worry about up front is the down payment. The down payment requirements are different depending on what type of mortgage you are qualified for. If you are applying for VA or USDA, you might not need to put any money down at all. If you are applying for FHA loan, it requires 3.5% down payment of the purchase price. If you are applying for conventional loan, it may varies as little as 3%.
Earnest money deposit
“Earnest Money Deposit”, also known as “Good Faith Money”. This is an expected part of an offer to purchase a house in Arizona. It demonstrates a buyer’s seriousness in buying a particular house. The amount of earnest money varies depending on several factors, including what type of market you’re in (in seller’s markets with multiple offers situation, a larger-than-normal EMD may entice the seller to choose your offer). In Phoenix area, the EMD is typically 1% of the purchase price.
Inspections fee
Once your offer is accepted by seller, you have 10 days to complete all necessary inspection. The most common type of inspection is a home inspection. If there is a well and / or septic system, inspections of those systems are recommended. Your lender will also requires to have termite inspection. Depending on the home inspection, sometimes additional inspection are recommended by your home inspector. Most common additional separate inspection are: pool inspection, structural inspection, HVAC inspection and so on.
All of these inspections are paid by the homebuyer up-front. Home inspection fees typically cost between $300 – $600 depending on home size and features. This inspection fees are not paid by the seller. So, it is important to have funds available to pay for any inspections you choose to have completed.
Home appraisal
A home appraisal is required by lenders to ensure the purchase price does not exceed the market value of the home. Lenders will not lend you more money than a home is worth. In order to ensure the value, lender will require buyer to order an appraisal. Home appraisal is used to determine the fair market value and general physical conditions of the property.
A home appraisal costs between $400 – $600 on average. This is a cost that will come upfront out of buyer’s pocket, and is paid directly to your lender. It cannot be rolled into the loan, and is not refundable for any reason.
Closing costs
Closing cost is the part of the buying process that catches many homebuyers by surprise. Closing costs are all the fees required of everyone who helps you purchase the home. That includes things like escrow fees, title insurance policy, lender’s fees, pre-paid expenses and so on. It is not unusual for closing costs to run anywhere from 2% to 5% of the purchase price. So it is important to understand the associated fees up front.
A reliable Phoenix buyer’s agent will assist with estimating your closing costs. In addition, a buyer’s agent will often try to work out a deal so the seller will pay all, or some, of your closing costs.
Summary
If you are buying a home for $250,000 and need a 3.5 percent down payment, you will need between $5,000 and $12,500 to close, assuming the seller isn’t giving you any credit towards those costs. Add in that $8,750 down payment and we are now roughly up to $18,000 that you will need to have in savings. That’s why it’s important to include the additional cash requirements in your home buying plans.
Swee Ng, Realtor and Phoenix East Valley resident specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in Phoenix AZ area, we hope you will consider us. Contact us today for complimentary consultation.
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