Phil: 0:00

Welcome to the first Time Home Buyers podcast. Today I wanna talk about when buying a home, how much will it actually cost? There's more than just the down payment to think about think. We've got Monica again with us today. She's a real estate agent who's gonna give us an idea of what kinds of expenses you can expect. When purchasing a home, I wanted to just go from the beginning of the process through the end. What is the first thing, Monica, that a home buyer will need to pay?

Monica: 0:35

Hi. Nice to be here again. So thanks for having me. so again, the first thing regarding finances that is truly the most important aspect for home buyers is to speak with a lender right off the bat, even if you're not thinking of purchasing a home for another six to 12 months, it's extremely beneficial. Speaking with a lender early on is so that they can help you with any credit issues or finance concerns, or just simply start you on the process to which loan type will be best for you. Lenders are such a fantastic tool for you as home buyers because they let you know how much you truly have to have saved or will need for this process. And they're also there to answer any and all questions you have about this process. So when you are truly ready to purchase a home, you'll be prepared.

Phil: 1:16

Yeah, and feel free to reach out to me anytime. I can. Look at your finances and let you know pretty easily if you have enough money saved up or about how much you might need if you're having credit issues. We do have a soft pulse, so it doesn't affect your credit. and a great partnership with a credit consulting group that was actually on our last episode. They can help get you where you need to be for purchasing a home. And our listeners get a free initial consultation just by mentioning the podcast.

Monica: 1:43

So moving forward to the subject of costs that you'll actually need when purchasing a home. I'm gonna kind of start with the process from the beginning. Let me first start off by seeing that one of the most asked questions I get right away from buyers is, how much do I have to pay you as a realtor to represent me to buy a home? The seller of the home is usually the one that pays the cost of the realtors. The seller will pay a commission to the listing agent who is the one that is selling the house. They then in turn, give a part of that commission to the buyer's agent who would be representing you. That commission is pulled from the profits of the home, so it's already built into the pricing. Even though you aren't directly paying your agent to represent you when you buy a home. What you aren't paying me for are any kinds of hourly. Gas mileage, , those kinds of things. They're all just buyers agent costs of doing business. So that's why it's really important to find an agent that you really like and that will work hard for you and really communicate with you about the entire process. Once we have found your home that you have love and you have had your offer accepted on it, you will typically have earnest money due. Now, earnest money is a deposit made to the escrow account that represents a buyer's good faith to the home. This money is due within the first three days of opening escrow and will be done through a wire transfer at the bank. Not wiring these funds over or delaying this could possibly mean losing that home because it's part of that normal contract. the amount of the earnest money is gonna vary, and it can range from about one to 3% of the purchase price. Some of the sellers might ask for a higher amount to be deposited because it shows them that you have more skin in the game, but I, as an agent, try to keep it at 1% of the purchase price. So for example, on a $500,000 home, it's gonna be anywhere from 5,000 to $15,000. Again, going at the 1%. Where I going at it would be closer to the 5,000 mark. The more you put in the earnest money, the stronger your offer is to the sellers. Just be aware that you wanna make sure that your money is protected by your offer. This is something that your realtor should definitely. Talk to you about further in depth. Now, should something happen during escrow that was not the fault of the sellers, the sellers may be entitled to keep this earnest money. So for instance, you can't back out of an escrow on a house because a better house came on the market towards the end of this escrow. Now that earnest money that beginning of the escrow is not just lost money. So don't be afraid for that at the end of the escrow. It's usually applied towards your closing costs or your down payment. Even still on a no down payment loan, I highly recommend doing a minimum of $1 to up to a thousand dollars just to, so that you are serious. Again, make sure you speak with your lender and your realtor about the earnest money because every home will be different.

Phil: 4:21

so now you've got your earnest money. What else will you need to pay for?

Monica: 4:27

this is what I like to call phase three of buying your home. This is when you're gonna be getting into the inspection in the investigation period. Your sales contract will specify how much time you have to review the home, have inspections done, and ultimately decide if you are going to move forward or terminate the contract based on those.

Phil: 4:43

Okay. Can you give us an idea of the inspections and maybe how much are their costs associated with them?

Monica: 4:48

Of course, so there's gonna be a general inspection done. We did an episode on this already on episode 11, I believe. So definitely listen to that one to get more details on what that involves. No matter if you are a renter living in the home, you're about to purchase or this is a new home for you, I recommend fully getting a home inspection done. I like to set this up usually within the first week of opening escrow because the sooner you know about something, the sooner we can get it fixed. This, is gonna show you what potential problems there could be with the home. The inspector is gonna go over the entire house. He's gonna look inside and out. They will test as much as they can that can be tested in the home., they'll put together a very in-depth report of findings, both good and bad. And the cost is usually around 275 to $400. And it really just depends on the size of the home. the cost of this is due at the time of service from you as the buyer. And most inspections take cash check, credit card, debit card, and every inspector is different. So remember that. Do some comparing or ask your realtor for some recommendations for an inspector. Now, if you have things like a pool, a septic tank, older roof, air conditioning issues, electrical issues, or even foundation issues, then you'll want to bring in an additional specialist. Pool inspections can be upwards of $400 depending on the amount of equipment you have in the home. But sometimes things like roof inspections can be a no charge inspection from a roofing company who will come out and let you know what work needs to be done. How I help my clients is I go over the home inspection report with you as the buyer, page by page, and if there is something that needs to be inspected, additionally, I'll call in, , and set up other inspections for. Again, any inspections you get done is on your cost and is to be paid at the time of inspection, not through escrow. You are welcome to have as many inspections done as needed, and as long as it's in your inspection period, you're fine.

Phil: 6:38

Also, we never advise anyone to skip an inspection. And if you have specialized equipment or older features to the home, or it's just an older home in general, you'll be spending more on that.

Monica: 6:49

you should also consider getting a termite inspection done. This could cost around 150 to $200 for the inspection. many loan programs require a termite report and sometimes this may be something that the seller pays for as well. it's gonna depend on how your realtor writes up that contract for you. Should there be any termite damage that's gonna be a separate cost to fix and repair the structures of the home that were damaged., so depending on how the contract was written up, either you or the homeowner will be responsible for paying for that. Another thing I didn't mention, there are cases where a seller will pay for some items. For example, the terminated inspection or the home warranty. The home warranty will be a year of coverage on the home. Should anything happen to the AC or hot water heater, usually it's around $700, but it depends on the size of the home. and if you have a pool or not. Now, I don't ever suggest having a seller pay for inspections aside from the termite report because it could become a conflict of interest, in my opinion. So again, it's all based on what you and your realtor have discussed and how your realtor writes up your contract.

Phil: 7:50

right? So inspections are gonna cost you, $300 or more depending on the home size and features. And then there's another cost that isn't an inspection, but usually happens in the same time period. And that's an appraisal, a home appraisal is done to determine the value of the home. Most loan programs will require this prior to funding a loan. Lenders don't want to approve a home loan if the home isn't worth what you're paying for it. Appraisals are going to run around $600, but that can vary by appraisal company, and if you're trying to get it done in a rush, there are extra charges that can be a few hundred dollars. Sometimes. This again, will be paid by you as the buyer and will usually be done in the first week right after escrow opens that we can go ahead and get that appraisal done right away at the beginning. We usually do this through a credit card payment. Your lender is gonna go ahead and send you an email with a link and you go ahead and pay for it. So we've gone through the home, we've done our inspection., we've removed that contingency, right?

Monica: 8:54

Right. So removing the contingency means that as a buyer, you weren't able to back out of the contract for that specific reason. and we have specific timeframes to protect you, which usually is about 17 days after acceptance of your offer to get those inspections done and accept that you are okay to move forward in the process. Again, this all determines on how your realtor has written up the contract however, that contingency period also protects you as buyers as well, because should you find something major wrong with the home that perhaps the sellers are not willing to fix or credit you a dollar amount towards fixing it, then you can safely back out of that contract and still get your earnest money back. You'll only be out the cost of the inspections and the appraisal. So as long as everything comes back fine with the appraisal, we're really in a good spot to move forward with the purchase. The next things that we'll be looking. Are paying for the closing costs and the down payments.

Phil: 9:46

Your down payment will range anywhere from 3% to 20% on average, and that money will need to be available to wire before you sign your final paperwork. So, Make sure that you have that in your account and available for things like FHA loans, that's three and a half percent. If you're doing a VA loan or a U S D A loan, that might be 0%. So it all depends on that loan type that you've got. Now the next thing is closing costs, and those are fees and expenses that you're gonna incur for purchasing a home. Those are gonna be things like your loan origination fees, appraisal fees, title, search and insurance, maybe survey fees, escrows closing fees, notary fees, document preparation fees, and recording fees. The total amount that you pay in closing costs varies a lot depending on your location, your county, even the day that you close, but typically it's gonna. From about 1% to 3% of your purchase price. So again, On that $500,000 example home, this will range anywhere from $5,000 to $15,000 on top of any other fees you're paying. Your loan officer will give you documentation that shows you which of these fees you can actually shop for. A notary fee, for example, could be one area that you could save money on., while the appraisal fee isn't something that you can negotiate or shop around and find a lower rate, so definitely talk to your loan officer about the loan estimate and the fees on there. If you're trying to reduce the amount of your closing costs,

Monica: 11:16

amount, there's usually not too much that you can reduce there, but every dollar matters and just knowing what you as the buyer are really paying for is truly what matters. Phil, is there a timeline on when they pay their down payment versus when they pay their closing costs?

Phil: 11:29

Typically, you're gonna have to wire your closing costs and your down payment into the escrow account before, usually a day or two before the actual signing takes place right before you close and get your keys. let's say you've closed escrow, you've got your keys. What kind of home expenses can I now expect after moving?

Monica: 11:50

Well, you have to get your utilities on and into your name. That's the most important one. Some of those may require a deposit, so definitely budget for that. Some homes may be vacant and require more time ahead to get the utilities turned on. So I always recommend that you get the gas, water, and electricity turned over into your name as soon as. Now the big thing is probably gonna be your moving costs. If you are just moving across town, your average price to move a three bedroom house is around $480 to about $800. Cross country, you're gonna run at least 2000 to $5,000 plus 50 cents a pound. An average three bedroom home has 5,000 pounds worth of. So you could be spending upwards of 5,000 to $15,000 to move from one home to another cross country, depending on how far and how much you're transporting. And also the company that you use. Each company is different. So definitely shop around.

Phil: 12:43

And then what other costs are there to consider?

Monica: 12:45

don't forget your furniture. If you're moving into a larger home, especially from an apartment, you may need to get some extra furniture for the larger spaces and before you move everything in, it's the perfect time to paint or update flooring if you need to or want to. It's also a good time to make repairs. To the home while nobody is in there, especially repairs like plumbing, which usually require turning off the water to a home., last thing, you might also need or want to get the carpets cleaned or replaced and consider any necessary landscaping costs, all of these costs and add up quickly. So just make sure you do your research on different companies and budget for that as well.

Phil: 13:19

I think these are all really great things and really encompass a lot what you're going to be paying that maybe isn't as obvious, they're almost the hidden costs of buying a home. They're not part of the down payment. They're not part of closing costs. Now, any last things that you wanted to impart on our listeners?

Monica: 13:35

Yes. I just wanted to stress one last thing about finances and the, the process. Once you're in escrow, it is extremely important that you do not apply for a credit card like a Home Depot card or a Kohl's card to save 20%. don't go buy new furniture and open a credit card. Please absolutely do not buy a vehicle. No new vehicles are allowed during the escrow period. It's really funny that I have to say that, but those kinds of things could put your debt to income ratio higher than what the loan approves you for. So please, please do not buy unnecessary items until after you close escrow. If you wanna buy all the cars on the lot or open 50 credit cards. Day, that's totally fine, but don't ruin your chance of losing the home and possibly all that money that you've invested into it by doing something too soon. we as realtors and lenders know that life happens and all that, but if something financially does come up, speak to your lender immediately. That's why it's so important to have a lender that you trust on your side that you can speak with anytime so that he or she can advise you on if something could potentially cause you your loan to not go through. I tell my clients those 30 days of escrow is a time for you not to touch your money. It's so important because one minor thing to you could be a huge thing to the underwriting team or the lending team. It's not worth it. Don't risk it. Again, we are based out of California and it may be different in your area, but the best thing to do is always check with your realtor or your lender about financial matters and any numbers we have given you today.

Phil: 15:02

Yeah. And again, thank you so much for all of your wisdom that you've given us here. I think the listeners here, especially if you're a first time home buyer, may not know what's all the different costs associated. But again, please head over to fthbpros.com, our website, where we have all of our podcast episodes available, articles and newsletter and resources, along with our Facebook group where lenders and agents can help answer your question. and you can also get Monica's information. You can reach her directly over the phone, (951) 395-1848 or Monica@HomesMM.com. I'll include that in the show notes and you could also get it from our website. So thank you Monica for coming on, and thank you everyone for your support and happy home buying.

Monica: 15:49

thanks for having me. And, , we're here to answer any and all questions you guys have.