Hot real estate is no excuse to forget about hidden costs
In a housing market where nearly half of American homes sell in a week and prices are climbing at a rapid rate, it’s easy for a buyer to overlook the hidden costs in the search for a new home.
This is all the more the reason why buyers – especially first-time buyers – should take a step back, breathe and consider all the costs involved, experts say.
In addition to a down payment, which most financial experts say should ideally be 20% of the home’s price, buyers should set aside closing costs.
These typically include the lender’s fees to create and take out a mortgage, realtor commissions, appraisal, property taxes, homeowner and title insurance, as well as local and national filing fees. .
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“In general, financial planners say you should expect to pay around 3% to 5% of your mortgage amount,” says Jessica Menton, USA TODAY’s personal finance and markets reporter.
For a $ 300,000 mortgage, that means setting aside $ 9,000 to $ 15,000 for closing costs.
If you take out a mortgage, your lender will provide you with a document detailing the closing costs. Take a close look at this document, advises Bill Gassett, a real estate agent in Hopkinton, Massachusetts, who has worked at the company for more than three decades.
In some cases, a buyer may ask a seller to cover certain items. But the sellers themselves typically shell out more than 5% of the total sale price in realtor fees, commissions, and other expenses, explains Menton.
With most homes selling well above the asking price, fewer sellers are likely to say yes, although they can negotiate if a buyer offers at least the asking price, says Menton.
“Choose these battles wisely,” says Menton.
Other costs may also arise. Here are a few to expect:
Some experts recommend that buyers hire an independent inspector, although sellers will hire one to check for major issues such as pests or mold before listing their property for sale. The fees can go up to $ 400, according to HomeAdvisor.
When making an offer, buyers typically bid 1-5% of the home’s value “for good” so the seller feels comfortable taking the home off the market, according to the National Association of Realtors. These fees are typically kept in escrow and applied to closing costs, Menton says.
If the house is part of an association, get details not only on the monthly fees, but also on upcoming special evaluations. It is the money required for major repairs or upgrades, such as a new roof or a new heating system.
“Most people know there are condominium fees or HOA fees, but they may not notice that a special assessment is coming, which will suddenly result in a big extra expense,” Gassett explains. .
As part of the closing, lenders have the value of the home appraised. Because home prices are rising so rapidly, the difference between asking price and appraised value can now reach tens of thousands, warns Gassett. This difference can put avid buyers in a “conundrum,” he says.
“The bank will only give the loan if the buyer puts more money aside,” he says. “So a lot of buyers are forced to put more money on the table than they thought they needed. “
If that’s too much, Menton suggests buyers hire a lawyer to guide them through to closing. Although this is an additional cost, a good lawyer can provide peace of mind and help avoid pitfalls. Look for a lawyer who is familiar with buying situations similar to yours, says Menton.
“They will help you negotiate any issues that arise during, say, a home inspection or an attempt to secure your mortgage,” Menton said.
Rachel Layne is a Boston-based freelance journalist. Her work has appeared in the Boston Globe, CBS News, HBS Working Knowledge, USA TODAY, and other publications. Previously, she spent two decades covering multi-industry companies for Bloomberg News.