What closing costs should buyers prepare to pay when buying a home?
One of the first costs you’ll incur is the home inspection. While a home inspection isn’t required, it’s always strongly encouraged; you want a professional combing through the home so you don’t get hit with any surprises regarding big-ticket items like the HVAC system. An inspector can tell you what, if any, issues are just deferred maintenance, and what issues need to be dealt with urgently. The cost of the inspection will vary on the size of the home, the age of the home, and who you hire to do the job. In most markets, you could probably budget between $500 to $1,200 for a basic home inspection.
After the inspection period, the next expense to prepare for is the appraisal. Sometimes, you can convince your lender to wait until closing to collect the money, but many will want the money up front. Typically, an appraisal will run you anywhere between $400 and $500. If you’re financing your house, an appraisal will be required by the lender. This is because they want to protect themselves by making sure they’re lending you the correct amount of money for the house. Find out as soon as you can what the appraisal cost will and whether they expect it to be paid out-of-pocket or at closing.
Here’s something else to factor in: Depending on what type of loan you have, you may have to pay your taxes and your homeowner insurance monthly when you pay your mortgage. In that case, that money will be put aside into an escrow account for you. In other cases, depending on when you buy, you’ll have put a chunk of money into that escrow account to get it activated.
In some markets, homebuyers will need to account for attorney and title company fees. Somebody will be on the back end doing title or abstract work, making sure that there are no liens on the property you’re purchasing; the last thing you want is to buy a home that has had some sort of lien placed on it by a creditor that hasn’t shown up on the paperwork yet. In Iowa, for example, we have an abstract company that updates the abstract, which then gets reviewed by an attorney on behalf of both the buyer and seller. For this kind of work, I usually budget $650 for my clients, and that covers the attorney fee, the abstract review fee, and the signing settlement fee.
Finally, homebuyers should consider the cost of a home warranty. We can cover what a home warranty really does in another upcoming video, but it’s almost always a worthwhile investment, especially for first-time homeowners that wouldn’t consider themselves handy. If the seller won’t pay for the home warranty, then it becomes another cost that you will have to pay for. Again, the cost depends on the policy and the company you choose, but generally, you can expect something between $350 and $600.
I hope this information was helpful, and that you now know what things to discuss with your agent and your lender. As always, reach out to me if you have questions about this or any other real estate topic. I’m more than happy to assist you with whatever needs you may have.