A common question that we get from first time buyers or actually sometimes just buyers who don't remember from the last time they purchased is how much money do I actually need to buy a home? What a great question. It's a good idea to know what your investment is possibly going to need to be before you get too far involved in the process in this video,

I'm going to share with you as much information as I can. Although, it's going to be kind of generic because every buyer is different. Your situation is going to be unique to you. So some of these things are well, perhaps not going to apply to you. They will apply to you. They might be out of date by the time you watch this video.

So I'm not going to give any specific numbers like what any fee amounts are going to be. First of all, because I don't necessarily know them. And also this video could get dated very quickly if I was giving the specific fees out because as you know, those things change very frequently. So there's a couple of things to keep in mind as far as how much is this going to cost me?

I think it's important to distinguish the difference between many you're going to have to pay out of pocket before closing versus money. You're going to have to pay at closing once you're under contract for your new house.

The very first thing that we're going to do is ask you for money. You will be expected to pay your earnest money. And that was the money that you told the seller you were willing to put on the line as good faith that you were going to fulfill your part of the contract. 

I did a video on earnest money and what you can expect, what it is and things that go right, and things that go wrong. So, you can go check it out if y

ou're unfamiliar with what earnest money is. But since I have this other video, I don't want to go too deep in it, but earnest money is the first expense you're going to have out of pocket.

Once you're under contract to purchase a home, the second out-of-pocket expense is going to be for your home inspection. If you choose to have a home inspection anyway, a home inspection is probably going to cost anywhere from $300 to $600. An average inspection is probably going to be $300 to $400, but you might decide to do a radon inspection or a mold test or a sewer test.

There's all kinds of inspections that you can do adding onto the normal home inspection fee. So there is no normal, but I would budget around $400, give or take for your home inspection. And that is money. You're going to spend out of pocket. And even if you end up not buying the house well, it's money spent to help you avoid bad money spent in the future by buying a money pit. Right?

Now, I've been thinking about all of the ways that you can spend money in the real estate process. And it's possible that I have missed something because you know, I am human, but those are the only two things that I can think of that you'll have to pay money out of pocket for before closing. And then all of the other expenses, they kind of feel like they're free because you don't actually have to write a check for them during the process, but they're not free.

Nothing is free in real estate. Everything is going to cost money at closing. If you don't write a check for it during the process, you can guarantee you're going to be billed for it at closing. 

So, first of all, when you're thinking about buying a house, you're probably wondering "how much money do I need for a down payment?". It's common for people to think that they need 20% for a down payment. And that's not necessarily true. If you have 20% down and you want to use all of that for your down payment, that's great.

That's going to help you save money on your monthly payment because you won't have to pay PMI or have a different structure to your loan where you're avoiding the PMI, but it still costs a little bit more money.

I am not a loan officer, so I know just enough to be dangerous, but I do know that there are different down payment options available anywhere from 0%. So you could have no down payment up to well shoot. Sometimes people have a hundred percent down payment because they pay cash. But if you're getting a loan, you'll have anywhere from 0% up to whatever percent you have saved.

So again, that's going to be different for everybody. You might have 5% down. The next person might have 10 or 15 or 20 or 30% down, but you're not limited to 20%. Now you personally might have limits based on your credit score, your debt to income. Some programs might be available to you.

Others might not. If you're buying in a rural area, then you might be able to qualify for a USDA loan that has a hundred percent financing. So 0% down payment, if you're a veteran, well, you might use your veterans benefit and have a hundred percent financing. So zero down payment, if you're not a veteran, well, that is not an option.

There are a lot of options out there. And we have some really good loan officers that we work with that have a lot of different products available and they would be happy to sit down with you and talk about what options are going to work best for you and help you reach your specific goals in the best way.

Then of course, when you're getting a loan for a house well, that costs money too. So you're going to have your loan closing costs. The loan officer needs to get paid for the work they've done. The bank has a bunch of things they have to pay for the credit report, the flood certification. There's a lot of things that get paid for on your closing settlement statement. 

When you are getting a loan for a house and those are called closing costs. Now you might be able to negotiate seller-paid closing costs. And that is where the seller gives you a credit at closing to offset some of those costs. Remember when I said that there's nothing for free in real estate, the seller isn't actually paying your closing costs. You are financing your closing costs by wrapping them into your loan. And I have gone into detail on that in this other video >> HERE<<.

Another fee included in your closing costs is going to be your homeowner's insurance. Once you've completed the inspection process, you're going to contact your insurance agent and we have a great agent that we can recommend if you don't know anybody. So anyway, you'll talk to your insurance agent and they'll give you a quote for your insurance and you'll say, " great, let's do it". And then they will work with your loan officer to make sure that the loan officer has all of the information that they need on their end to make sure that the house is insured because a bank isn't going to let you buy a house without having proper insurance on it, because it's their investment right along with you since you're using their money.

Anyway, you're going to pay for that whole year, the whole first year of owning the home. You're going to pay for that on your settlement statement. So it will be paid for at closing. Your homeowner's insurance might cost a thousand dollars, and that will just be a line item debit on your side of the closing settlement statement.

 

Sometimes called a broker admin fee or a broker fee, or sometimes I've even seen it called broker commission, but it's really a regulatory compliance fee. And what that does is it goes to the broker. That fee covers a lot of different items. And we have a forum that we'll send you. That explains exactly what is covered by it. But that includes things like reviewing the contract to make sure that all of the I's are dotted and the T's are crossed and that everything is legit.

So we don't have problems later. It makes sure that the right people are collecting the earnest money and tracking that appropriately. The office is also able to order the home warranty and make sure that that is collected on the settlement statement by the appropriate party. It affords us the ability to have extra eyes on the title opinion to make sure that there are no title issues to work with and communicate with the appraiser if necessary, to work with the lender and stay on top of them and make sure that they are on track for an on-time closing.

It also covers us working with the settlement agent to make sure that there's no mistakes on your settlement statement, because that's the worst when you get to closing and everything is wrong. We'll process the termite inspection report. And if there's any recommendation of services from that inspector will ensure that that is handled appropriately. And we also keep all of these documents on file for a minimum of seven years. So if you ever need a copy of anything and I mean, let's face it.

These are not the most exciting documents. So you might lose track of where you kept your closing documents for purchasing this house, but the broker will always have a copy of them. There's a cost associated with doing all of that work. And so that's what the regulatory compliance covers.

 

I mentioned a home warranty during negotiations, you might ask the seller to purchase you a one-year home warranty. Of course, they would pay for that on the settlement statement, but maybe you're in a competitive negotiation situation and you still want that home warranty. But you don't want the seller to have to pay for it. So you're making your offer more attractive by offering to pay for your own home warranty yourself.

In that case, we would need to make sure that the home warranty was on your side of the settlement statement at closing part of your closing costs. It's also possible that you might have a real estate professional fee or a real estate commission included on the settlement statement. And so that would cover your buyer's agent fee.

So it's not uncommon for a seller to offer a certain amount of money for selling their house. And that may or may not be what your buyer's agent fee actually is. Now. You'll know well in advance, if there's going to be a premium upcharge for this real estate professional fee, and we'll have talked about exactly what that looks like, what scenarios that might apply and whether or not a house that you're going to look at would qualify for that type of thing. But it is a possibility that this expense would be on your side of the settlement statement.

 

At closing, if you buy in a homeowner association where there are monthly HOA dues, let's say the dues are $300 every month, and there's 30 days in the month and you're closing on the 15th of the month.

So the seller would have already paid that month, HOA dues, but they're only gonna live there for half the month and you're going to live there for the other half. So since they've already paid the HOA, you're going to pay them a prorated amount for half the month. If that is how you negotiated your contract on the settlement statement, as part of your closing costs.

These were the most common expenses that I could think of when it comes to buying a house.

So then after closing, of course, you're going to have to make your (1) mortgage payment. You might have an (2) HOA payment, if you're in an HOA, you're probably escrowing for your (3) taxes and your (4) insurance, but then there's the (5) maintenance.

You know, you're going to have to sharpen your mower blade. You're gonna have to get mower gas. You're going to have to clean the gutters. And if you don't do that, you're going to have to pay somebody to do that. I would recommend each season in summer and winter and not each season,

I guess, twice a year, have an HVAC company come out and service your air conditioner and your furnace to make sure that they are working properly. So you're going to spend a little bit of money proactively doing maintenance to make sure that the equipment that you have that keeps your household running lasts as long as possible, saving you money in the long run.

And then, you know, nothing lasts forever. Things are going to break. So you should probably budget for (6)repairs. In a nutshell, these are all of the things that could potentially cost you money when you're buying a house. But again, I said this at the beginning, every situation is different and it's entirely possible that when you buy a house that there might be another fee that comes up.

But we want to make sure that you're never surprised by the fees. So we're going to talk about everything. You're going to understand everything. Then you'll have time to be able to weigh the pros and cons and make informed decisions.

If I haven't scared you away from the process, and you would like to talk more about your unique situation and buying a home in the greater Des Moines area, we would love to talk to you. Schedule a time to chat with me or my team.