First time buyers often assume the only money they need to purchase a home is the down payment. However, there are many other upfront costs to consider.
While earnest and option money are indeed part of the down payment, here is a list of other costs to keep in mind:
Earnest Money This varies but is usually 1-2% of purchase price when an offer is accepted. This becomes part of your down payment.
Option Money - The fee varies but it is usually between $100-$300 depending on the size and popularity of the listing (ie multiple offers). This goes directly to the seller and is compensation for the amount of time the seller is taking their home off the market. This is meant to be the time in which the buyer does their “due diligence,” to do inspections of the home as well as checking for other particulars about the home and area: the school district, flood zone, zoning, etc. Can be used towards the down payment. If costs are excessive, the buyer can opt out of the contract during this time and get back their earnest money.
Inspections - Depending on the home, once your offer is accepted you should always have a general inspection. There are other inspections you might want to have done as well: septic if there is one, foundation inspection if that has been a problem or is in an area prone to foundation issues. If there is a lot of exposed wood you may also want to have a termite inspection. Inspections are paid by the buyer at the time of the inspection to a private contractor.
Closing Costs - this is the fee charged by the lender for servicing the loan and includes many fees - attorney fees for creating documentation, filing fees, etc. This must be brought to closing. Sometimes the seller will agree to pay some and some fees may be written into the loan by the lender. The maximum the seller can contribute by law is 3% of the purchase price.
Appraisal - This will be charged as part of the closing costs.
Taxes - Estimated property taxes are prorated for the part of the year you will own the house. If this is your primary residence you will need to apply for a Homestead Exemption after January 1st of the following year to receive that.
Insurance- Homeowners insurance is required by the lender.
Transfer Fee - If you are buying a condo or in a community that requires this as part of the sale, this is a fee to receive all condo documentation including budget, rules, etc. This is also required to put the property in your name at closing. This amount will vary from community to community but non-negotiable.
Repairs - All repair costs are not created equally. Under the contract you usually agree to pay for the home “as is.” However, if a repair is a significant cost and a major system: air conditioning, pipes, septic, roof.
Upgrades/ Cosmetics - If the appliances are old or in non-working condition you may want to replace them or do a complete remodel. Although a seller may offer a credit, paint, new floors, etc are usually at the buyer’s expense after the house is theirs.
Thinking about buying in the Texas Hill Country of Central Texas? Give Carla a call or text - 512/363-2226.