"Up Front" Buyer Expenses

What “up front” expenses can I expect when purchasing a home?

After an offer has been agreed upon by both the buyer and seller, the buyer will be required, by the terms of the purchase contract, to include a personal or cashier’s check for “earnest money”.
The “earnest money” will be kept by a designated title company handling the escrow and not turned over to the seller. Your “earnest money” deposit, represents your sincerity to purchase the home and is refundable based on the terms agreed upon in the purchase contract.

How much earnest money?

The more expensive the home the higher the earnest deposit. The amount like most elements of a contract is negotiable, however the more money you put down, the more serious your intent will appear to the seller.

Loan cost

Loan application takes place anytime before selecting a home, but no later than five days after an accepted contract. Fees are paid to the lender for credit reports and appraisals, approximately $300 to $400, depends on lender.

Home Inspections

It is extremely important and much advised to have your home inspected by a qualified inspector. It is common practice to use a single inspector for this task, however it may be necessary when purchasing an “older” home or a property that has items of concern, to use a licensed contractor to inspect a specific part of the house. For example, the property may have obvious roof damage. A normal inspector will only tell you the roof needs further investigation, while a roof inspector will tell you how extensive the damage is and give an estimate as to the expense.

Estimated inspection fees

* Home inspection: $300 and up (Depends on Size of Home)
* Roof $75+

Agent Fees

The agent fee for the buyer is typically paid by the listing broker (the seller pays the listing broker as per their listing agreement and the listing broker offers a % (called a co-broke) to the selling agent) The only exception to this is when a fee is agreed upon, in advance, through a Buyer Broker Agreement. In most cases, the buyer doesn’t pay anything

At Closing

Balance of your down payment plus closing costs. Closing costs range from approximately 2.5% to 3.5% of your loan amount depending on your lender.

3 types of closing fees…

* Down payment – the amount you are paying for a down payment on the home
* Pre-paids – pro-rated fees paid in advance. (fees that are pro-rated and returned to you upon selling)
* Fees – just plain expenses, once paid they are spent!

Sample Closing Fees for Arizona

Credit Report– Usually around $60.00. Paid at the time of formal loan application. Non-refundable.

Property Appraisal Fee – Usually around $350 – $400. paid at the time of formal loan application. Non-refundable.

Origination Fee – The lender’s charge for loan processing and handling. Customarily 1% of the loan amount, paid by the buyer typically at closing.

Discount Points – Vary with mortgage market conditions and may range from 0 – 5 or more.

Mortgagees Title Insurance - The lender (who is the mortgagee) requires the borrower to purchase a title insurance policy to protect the mortgagee against title defects that would affect the loan. (NOTE: The seller purchases a title policy for this protection for the buyers.)

Document Preparation - This is a charge for completing and handling the paperwork associated with the loan. A lender’s fee.

Recording Fees – Fees charged by the government for recording in the county records. The documents associated with the purchase (i.e. the warranty and trust deeds).

Pre-paid Items – These are collections in advance for loan interest, homeowners insurance and property taxes. Daily interest from the date of closing until the end of the month. One year’s homeowner’s insurance premium for the coming year. 2 to 3 month’s in advance payment for the following year homeowner’s insurance premium which is placed in the purchaser’s escrow account. 2 to 4 month’s worth of property taxes are placed in the purchaser’s escrow account over and above the seller’s credit to purchasers.

The “up front” expenses I have included are only an estimate. Many variables can determine the exact cost to a buyer. Your lender should provide you a good faith estimate, that estimate details all of your cost, but keep in mind, it is only a “good faith estimate”.