When we started the process of buying our first home, we knew it was going to be expensive. To help ease the financial burden we looked into loans that accommodated for our income and gave us some financial reprieve. We had a rough guess as to what we would be looking at in terms of a down payment and closing costs.
In our case, the First time homebuyer loan allowed us to put 3.5% of the total cost of the home towards a down payment (vs. the usual 20%) This means that our down payment and our closing costs would come out to roughly the same price. This alone saves us a ton of money, which allows us to buy in a reasonable price range.
So, if you’re trying to estimate the total of your downpayment and closing costs (for the FHA loan) find out what 3.5% of the total value of the house your interested in is and multiply it by 2. Keep in mind that lenders often have fees attached to closing costs to cover all the work they do for you along the process! – add an extra $1,000-$1,500 to be more accurate.
So lets say you’re looking at buying a home priced at $145,000. through an FHA loan.
You’re down payment would roughly be $5,075. Meaning your closing cost would average around $6,575 ($5,075 +$1500 for lender fees.) In total you’re already looking at $11,650.
Expensive right? But wait, there’s more.
Like I said, we knew buying a house would be expensive. We budgeted for the big down payment and closing cost fees… but what we didn’t think about were all of the “little” expenses that add up quickly during your buying period. Thankfully we were eligible for a second loan that covered the downpayment allowing us to squeeze by with just enough for the out of pocket costs that started to accumulate.
I promise i’m not trying to freak you out, or push you away from buying a home. I just want you to be prepared for the responsibility you’re about to take on so that you can move through the process with confidence.
Here are the out of pocket fees we found AFTER entering into contract.
One of the first fees we came across was the inspection fee + $350.00. It’s important to find a good inspection company that will work diligently so that you aren’t shocked with any major problems after you’ve already closed on the home.
Now because we did have some issues the inspector has to come back out and re-inspect the property to be sure that all the repairs have been fully completed. +$100.
The second fee we came across was for the appraisal of the home. I naively just assumed this was provided at no cost. Boy was I wrong. +$500
We also found out that our seller did not have a recent survey to use for the title company, so we are held responsible for scheduling one ourselves. The average estimate I received after calling multiple companies in the area stayed right around +$400.
So, here we are about a week and a half away from our closing date and thus far we’ve spent $1,350 out of pocket. I keep waiting for the ball to drop with another unforeseen expense, but for now this is where we stand.
Purchasing your first home is stressful enough without having to be blindsided by out of pocket expenses at each and every new step. I hope by sharing our experience you’re able to budget closer to the reality and take some weight off your shoulders!