New Home Purchase:
Where does the money go?
When buying a home, you must consider the TOTAL outlay of money
involved with the transaction. There are several benchmarks during
the process, each with players involved and associated costs. The
intent of this article is to make you aware of how and when the
money you have slated for your purchase will be spent.
Upon having your offer for a home accepted, a series of events
is put into motion leading to the eventual purchase (known as the
CLOSING) of the property. The following are the costs in the order
in which they occur.
1. Deposit or Earnest Money. This amount is customarily
1% of the price you are offering for the property. This check is
made out to your Realtor, your Attorney, or the Seller's Attorney.
[Incidentally, there is NO cost when you use a Realtor to help you
find a property and make offers. Her/his commission is paid from
the Seller's side of the transaction.]
2. Property Inspection Fees. This can encompass one or several
separate fees for the inspection of the property being purchased.
A building inspector will examine the home in detail to determine
any problems with the home's structure and systems (mechanical,
electrical, plumbing, etc.). This cost can range from $250 to $500.
Other inspections are for termites ($75 to $125), water potability/chemical
elements ($45 to $385), air test for radon ($50 to $100), and septic
system inspection ($350 to $650). Some of these may be performed
by the building inspector. Most often, there are separate professionals
whose fees range in price depending upon the scope of work involved.
3. Application/Appraisal Fees. Charged by Mortgage Companies,
Banks and other Lenders these up-front fees can range from $350
to $700. The total fee depends upon the type of home you are buying
as well as the price of the home being purchased. For example, multi-family
homes (2-4 units) have higher appraisal costs associated with them
as do luxury homes (usually when over $500,000 value).
4. "Due At Contract" amount. Depending upon how
your offer is written, you may need to deposit the remaining amount
of your down payment (or some portion thereof) at the time you sign
formal contracts for the purchase of your new home. In some cases,
this amount can be held off until the day of closing, such as when
you need the funds from the sale of your current home to allow the
purchase of the new home. [Hint: If you don't need the proceeds
of a home sale to accomplish your new purchase, you have a competitive
advantage over others whose offers ARE dependent upon them selling
5. Homeowners' Insurance Premium. For single-family homes,
Lenders insist upon a homeowners' policy equal to the mortgage or
with Guaranteed Replacement Cost written into the policy. This is
an item you must verify with your Mortgage Professional to make
sure you obtain the correct coverage. It must be paid for 12 months
in advance by the time of closing. This cost can range from $400
to over $1000 depending upon the size of the home, amenities, optional
coverages, etc. Best to check with your Insurance Professional on
For condos, you have insurance through your condominium association
that is paid through your common charges. You SHOULD purchase a
condominium owners' policy, though. This covers the inside of your
unit for liability and personal property such as furniture, clothing,
appliances, etc. This coverage can range from $180 to $300 per year.
6. Closing Costs. These fees include any underwriting and
administrative fees relative to the mortgage, points (if being paid),
attorney fees, title charges and any property taxes payable. These
costs are detailed in a Good Faith Estimate, which must be disclosed
at the time of your mortgage loan application. Some options for
minimizing these costs include Zero-Points loans and Seller Concessions
(where the Seller contributes to your closing costs). These methods
vary from program to program and will depend upon certain flexibilities
of the Seller and the Lender who ends up servicing your loan.
7. Moving Costs. This includes costs of a rental truck if
you plan to move yourself, or the cost of any mover you hire. Rental
truck costs can vary widely depending upon size of truck and the
truck provider. Local move costs can range from $49.95 per day plus
$.45 per mile (for a 10-foot truck) on up to $99.95 per day plus
$.45 per mile (for a 25 foot truck). Mover costs vary hourly for
local moves, depending upon how many men are utilized with a moving
truck. This can range between $100 and $160 per hour.
For long-distance moves, the pricing is done by weight. It's best
if you do this research early in the process of home buying. This
is especially important if you plan to move during the spring and
early summer seasons here in the Northeast. Be sure to use a State
Licensed carrier, and seriously consider the additional cost of
breakage insurance for your belongings.
Mark Atkinson is a licensed Real Estate Agent with New Realty Concepts,
doing business both in CT and NY. Phone: 860-350-3111. E-mail: Matkinson@newrealtyconcepts.com.