How much does a home cost? Before you get too comfortable with the asking price in the real estate ad, you should be aware of all the expenses you will be expected to pay.
First, there is the price of the home itself. The seller offers his or her house for sale at the asking price. This price may be negotiable depending upon the condition of the home and other factors. After the negotiations are done, the agreed-upon price becomes the cost of the home. To secure this cost, the buyer is expected to make a non-refundable payment to the seller. This is called earnest money. This amount will be deducted from the amounts paid when the sale is completed.
Most people finance their home purchase through a mortgage loan from a bank, credit union, or other lender. Many mortgage lenders require a fee that may include the cost of the application as well as appraiser fees, credit reports, and costs to acquire the loan, such as a loan origination fee and "points," a fee as a percentage of the loan amount. Mortgage loans rarely cover 100% of the purchase price, and a cash down payment is expected at the closing, when the transaction is finalized.
The lender may also require that you have the title to the deed insured, in order to guarantee that someone else cannot claim the property from you after the sale. Title insurance guarantees that the seller is the real owner and has all rights to transfer ownership. You pay a premium to the title insurance company for this service. You may be required—and it certainly is a popular idea—to insure your new purchase with hazard (i.e., fire, earthquake, flood, etc.) insurance. You may also be requested to purchase mortgage life insurance (optional) and private mortgage insurance to protect the lender from default due to your insolvency.
Real estate transfers are complex legal matters in most states. You may have an attorney to advise and help with negotiations and paperwork leading up to, and including, signing of all agreements. You will also need additional cash at the closing to cover fees for recording the new deed to your home, as well as a deposit for real estate taxes.
Together, all of the costs involved in closing a home purchase can add anywhere from 3% to as much as 10% to the cost of the home, in addition to the actual down payment applied to the purchase.
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