What Should Buyers Budget For When Buying A Home?Buying a home can be difficult enough when you're building up your credit score, saving up money for a down payment, negotiating a purchase price to
What Buyers Should Budget For When Buying A Home
What Should Buyers Budget For When Buying A Home?
Buying a home can be difficult enough when you're building up your credit score, saving up money for a down payment, negotiating a purchase price to fit within your budget, and selecting a mortgage that will fit your budget for the next 15 or 30 years.
But, many other factors go into the initial cost of purchasing a home. So, as a buyer, what are some of the initial costs you should expect to pay when buying a home?
In general, closing costs typically add up to 2-5% of the sale price of your future home. To illustrate, take this example: in September, 2017, the median sales price of a home in the Orlando, Florida, area was $225,000 (source: Orlando Regional Realtors Association Market Report - September 2017). The closing costs on a home at that sales price puts the closing costs in the ballpark of $10,000. This is in addition to any money being applied as a down payment, so be sure to budget for these additional costs!
Some of these costs will be one-time, non-recurring expenses that you'll pay during the home-buying process. Other costs will be recurring expenses that you'll pay on a schedule, such as monthly, quarterly, or annually, for as long as you own the home. These are also called "prepaid costs". Some of these costs are described below.
Prepaid Closing Costs
When you're going through the closing process, prepaid closing costs consist of several smaller fees that add up to a large sum - for example:
loan origination and loan processing fees;
lender underwriting fees;
a property survey;
private mortgage insurance;
your credit report;
Your mortgage lender will require an appraisal be performed by a certified professional appraiser. The appraisal report contains a detailed evaluation of a property's value. The value is based upon several factors, including an on-site visit to the property to assess the condition of the property and of its contents, along with a review of comparable properties in or near the neighborhood. In the Orlando area, the fee for the property appraisal usually costs a buyer $300-$500, which needs to be paid out of pocket prior to closing.
Another expense that gets paid out of pocket before closing is the home inspection. The $300-$500 that you'll pay for a licensed home inspector in Orlando to evaluate the condition of your future home is money well spent. Certified home inspectors will physically inspect your future home to discover if there are any issues with the structure that you, the buyer, should be aware of. Once the inspection is complete, you'll have the insight to know whether you'll be making a solid investment or if you should walk away from the deal.
Although homeowners insurance isn't required by law in the state of Florida, property insurance will almost certainly be required by your mortgage lender. Property insurance protects the lender's investment in your home in the event that a catastrophe happens to your property. For a typical home purchased in the Orlando, Florida, area, you can expect to pay around $1,000-$2,000 per year for homeowners insurance coverage. Other types of insurance, such as flood insurance, may also be required by your lender. This will depend upon factors such as the location of your home and its proximity to bodies of water, such as lakes, streams, rivers, and flood zones.
If you're purchasing a property that's in a community with shared spaces (such as a condominium, a townhouse, or a villa), then you'll almost certainly have to pay a fee to the community's homeowners association, or HOA. HOA fees help pay for things like maintenance of community common areas, community landscaping and irrigation, and community recreational facilities, such as swimming pools and tennis courts. HOA fees in the Orlando area vary from community to community, but buyers should expect to pay $2,000-$5,000 a year in HOA fees.
The items listed above explain a few of the common closing costs that buyers should take into consideration when buying a home. Helping buyers plan for the purchase of their future Orlando home is just one way I can help. When it comes to buying property in the Orlando area, give me a call!