What Are Costs When Buying A New Home?
Whether it is new to you or straight from the builder, similar fees are associated with any purchase of a home. Often you hear a ballpark figure you should save for when buying a new home is between 2%-5% of the purchase price. The purchase price is the agreed amount that the seller is willing to sell and the buyer is willing to buy and may differ from the actual list price. Let’s dig a little deeper in to the cost when buying a new home and see a break down of costs you may be expected to pay.
Closing Costs
Prior to your Real Estate Professional submitting your offer, you will have gone over the estimated costs when buying a home. There are typically two types of costs referred to as Recurring Closing Costs and Non-Recurring Closing Costs. Non-Recurring closing costs are one time fees that are paid during the escrow period and not again. Recurring closing costs are fees that are paid during escrow and then paid again on a reoccurring schedule.
Non-Recurring Closing Costs
Costs paid at closing that are one time fees and do not repeat.
These costs are included and may not be limited to only these costs. We recommend you speak with your Real Estate Professional for your specific requirements.
Escrow Fees –
The cost of having a neutral party manage the exchange of money for real property. This cost is shared by both buyer and seller. Each has their own portion to pay to govern the transaction. When your offer is accepted and an escrow is open, this is the place that you will take your earnest money deposit unless you choose to wire the funds.
Earnest Money Deposit –
The money you take to escrow after your offer is accepted. The amount is typically 2%-3% of the purchase price and taken to escrow within 3 business days. These funds are removed from your account and held with escrow to be applied towards closing as part of your down payment. It is important to remember that closing costs and down payment are not the same.
Appraisal –
After your offer is accepted, your lender will order an appraisal by a 3rd party company to assess the value of the home. This ensures that a neutral party can confirm the home is valued at or above the purchase price so the lender can proceed with the loan process knowing the home is not valued less than the agreed upon price. These can cost between $350-$500 and is an upfront cost paid out of pocket before the close of escrow.
Home Inspection –
This is another cost that is paid upfront at time of service. Most choose to have a professional home inspection company inspect the house taking an objective view at all areas and functionality of the property. Buying a home is a large investment and a great home inspector can help point out areas in need of repair and educate a soon to be homeowner with preventative care tips and what to expect when maintaining the house in the future.
The last thing any new home owner would like to deal with during the first year in their new home is costly repairs. Home warranties are protection plans that usually range in a 12 month period and can help with major repairs or system and appliance replacements. It provides additional peace of mind and can help protect and preserve your most valuable asset. This is negotiable and can be paid by the buyer or the seller. Price does vary with coverage. There are small fees that may show on your settlement statement that can include wire fees, document preparation fees, courier and delivery fees, as well as notary fees. These costs may vary based on the companies used. Your credit scores help determine the conditions and rate you can receive on your home loan. This report helps the lender review your credit history to see that you pay your bills on time, that your credit cards have a healthy balance and are NOT maxed out. The higher your credit scores are, the more likely the lender will view you as a low-risk investment allowing for a better interest rate on your loan. Some lenders have programs that help with credit repair and are instrumental in creating a plan that makes home-ownership possible. The underwriting process allows for analyzing the risk and approving the mortgage. In underwriting, the information you put on your application is verified and reviewed along with the supporting documents you provide. The underwriting department will check with your employer that you are employed and paid the amount per your application. During the process, the appraisal is reviewed to make sure the home you are buying comes in at or above the purchase price. A title search is performed to look at the history of the property and determine if there are any claims or liens against the property that could hinder the sale. Title insurance is issued to help protect any claims of ownership after the property is sold. If you are buying a home in a flood zone, you will be required to buy flood insurance. All these must occur before final loan approval and the green light is given to fund the loan. This can also be referred to as a loan origination fee. It is the fee charged by the lender for preparing and processing your loan. Recording fees are generally charged by the county. The county maintains all records of property purchases and sales so that they may become public record. These fees can differ from county to county and complexity of the transaction since they also keep record of loans or other liens that are against the property. The cost of buying a home can add up and in some cases, funds can be negotiated through your offer to request a credit from the seller to help cover some of these costs. Prior to submitting your offer, ask your Real Estate Professional to provide an estimate of closing costs for your review. These costs are included and may not be limited to only these costs. We recommend you speak with your Real Estate Professional or Lender for your specific requirements. Discuss with your lender your options to incorporate paying your taxes with your mortgage payment or paying them separately when you receive the tax bill in the mail. If you choose to have the lender set up an escrow account, your responsibility is to make the monthly payments required. The lender takes care of the rest through the escrow account. The escrow account acts like a savings account and holds money that can pay the taxes and homeowner’s insurance when it is due. You will receive a copy of the tax bill in the mail for your records. The option to pay separately will require discipline in saving and sending in the payment due in a timely manner. Property taxes are mailed in early October and made payable in 2 installments. The first is due November 1st and the second is due February 1st. Simply put, this is the amount charged by the the mortgage company that is funding your loan to purchase your home. Interest rates are calculated in a percentage and can vary with a variety of factors including credit score, down payment, income stability, and the type of loan you are receiving. This is interest that is paid in advance when buying a home or refinancing a mortgage. The interest you pay upfront covers the amount of time you occupy the house until your first mortgage payment is due. Usually it is calculated for a time period that is 30 days away from when your first mortgage payment is due. Prior to submitting your offer, you have talked to a lender and understand that when your offer is accepted and escrow closes, you will receive each month your mortgage statement telling you how much you owe, the breakdown of payment and where/how to pay your mortgage. The joys of home-ownership do include this reminder every month for the term of your loan. Before a lending bank can issue you a mortgage. you will be required to provide proof of insurance. Homeowner’s insurance covers losses and damages to one’s house and belongings in the home. This also provides coverage against accidents in your home or on your property. It is important to remember that this is different from a Home Warranty and Mortgage Insurance. Mortgage Insurance is normally taken on if you are making a down payment less than 20% of the purchase price. This insurance protects the lender if a buyer defaults on their payment or otherwise is unable to fulfill the obligations of the mortgage contract. The cost and requirements may vary with they type of loan you are using and this is different from Homeowner’s Insurance. Mortgage Insurance protects the lender and the Homeowner’s Insurance protects the homeowner. Proof of fire insurance is required prior to closing escrow. One may ask, “How do I get fire insurance if I don’t own the home?” Escrow is asking for who you will be using and not the policy itself. Once you have determined the company you will be using, your policy will take effect on the day ownership changes. If flood insurance is required, this is in addition to a Homeowner’s Insurance policy. A lender may require you to have flood insurance if your home has been determined to be in a flood zone. It is possible in certain markets, when inventory is low that a buyer offers more than list price to purchase a home. When it comes time to get an appraisal and the property does not appraise for the purchase price, both buyer and seller (through their real estate agents) are in a position to negotiate price. Occasionally, the buyer does agree to bring in a portion, if not all of the difference from the appraised value to the price offered. Even though the sale has closed, factor the cost of moving into your budget. If you are using a moving company, renting vehicles, hiring movers or have to store your belongings for any amount of time, that can add up. Get quotes from various companies, ask your real estate agent if they can recommend a company or even if they know of vendors offering discounts. Ask your friends and family to refer a company and make sure you do your research with online reviews. Changing locks or adding a security system may be an important upfront cost that you choose just as soon as escrow closes. Utility deposits may be required and can be discovered and addressed to take effect when the escrow closes as well. Whether you are going from a large home to a small home or a small home to a large home, you will discover that furniture becomes an issue. Your favorite sofa may not fit into your new home. Your bed may now be too big to fit in your guest bedroom while your master bedroom has no room for your favorite chair. It is important to take measurements during the escrow period to make sure that you have an idea of the adjustments you may be looking at when you move. Maintenance costs should be minimal, often the builder offers a long term warranty to cover structural items. In California, we are noted for our hot sunny days so when the occasional rain happens, your house will show you if there are any waterproofing issues to be addressed with the roof or with grading that drains into your home instead of away from it. Depending on materials used, flooring could warp, appliances can malfunction, and it is no surprise that problems in a new home are also problems you can find in an older home. You just won’t know….until you know. Even in a new home, you can pay for a 3rd party home inspection. Even though your home has never been lived in and built custom to your choices, in the haste of building sometimes items are missed. We are not all perfect and this allows an opportunity to have any mistakes corrected prior to closing escrow. Unless the house comes with these, there are certain items you may decide to add after escrow and at your expense. Items such as patios, landscaping, window treatments, and appliances should be factored into your budget when buying a new home. In some cases, your real estate agent may be able to negotiate some of these items with the builder. Most model homes are the homes you fall in love with. They are designed to make you feel at home when you walk in. Chances are, the home you fall in love with is heavily upgraded. This isn’t done just to tempt you. The home has to handle the wear and tear associated with the volume of people touring the house on a daily basis. The upgrades can show you what is possible when choosing design options for your new home. If upgrades have not been chosen already, take your time at the design center. Evaluate the cost of the upgrade and how it may increase value in the home over time. You have changed your life style to save for a home. This may mean that you have given up impulse buying or make dinner at home instead of going to a restaurant. These are habits you may consider continuing. The joys of home-ownership do present surprises from time to time. It is always a good idea to be prepared to handle unexpected expenses or repairs that may come up. Appliances, sprinklers, routine maintenance, and future upgrades all seem more manageable when you have a safety net to rely on. Home Warranty –
Incidental fees –
Credit Report –
This program offers Credit Analysis, Tax Planning, Asset planning, and Budge Planning. We can put you in touch with professional that have use this program to position you to buy a home.
Underwriting –
Fees Paid To Lender –
Recording Fees –
Recurring Closing Costs
Costs paid at closing and will continue to occur or be repeated
Property Taxes-
Interest Rate –
Prepaid Interest –
Purchase price –
Homeowner Insurance –
Mortgage Insurance –
Fire Insurance –
Flood Insurance (if required) –
Additional Costs When Buying A Home
Out of Pocket Expenses – Cash Beyond Closing Costs.
Moving
Furniture
New Construction’s Additional Costs
Hidden (unknown) Defects –
Now that when your new home is built and you move in, you begin to create the history of your home. There are many “firsts” you experience when buying a new home. The first time you use the stove, the first time you plug in your computer, the first time you take a shower, and the first time you experience a rainstorm.Home Inspection –
Unexpected expenses –
Upgrades-
Tips To Keep Saving Money
Continue to save
All Corona Houses For Sale
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Corona House Values
Have to sell a house before buying a new house in Corona? Sweeter Real Estate Group provides this estimated value as a courtesy and always suggests a personal in house review.
