Graduating from Clemson University with a degree in Secondary Education Mathematics lends itself nicely to teaching my clients all there is to know about the math behind their home purchase or sale.
Being the math nerd that I am, I created Excel spreadsheets estimating the costs of purchasing or selling a home (email me if you’d like these!). What follows in this blog post is an explanation of the Estimated Buyer’s Costs spreadsheet.
Getting Started
In today’s fast-paced seller’s market, an important first step in purchasing a home is speaking with a mortgage lender and getting prequalified. Your mortgage lender will guide you through all of the different loan program options (conventional, FHA, USDA, VA) and help you determine which program is the best fit for your goals.
Down Payment
The amount of money for your down payment depends on the loan program that you select and is a certain percentage of the sales price of the home. Conventional loans require at least 3% down, FHA loans require at least 3.5%, and USDA and VA loans do not require any money down. It is important to remember that these are the minimum down payment requirements. Putting more money down shows the seller that you are a strong, qualified buyer.
Earnest Money Deposit (EMD)
Earnest money is good faith money showing the seller that you are serious about purchasing their home. It is customary for a scanned copy of the earnest money check to be sent along with the offer to purchase a home. If your offer is accepted, the earnest money check is deposited in 1-2 business days in your attorney’s or brokerage’s account.
The amount of earnest money you put down varies on the price of the home, but $1,000 is typical. Some buyers think that this money just disappears, but it goes towards your total closing costs. For example, if it costs $7,500 to close on your home, you would only have to bring $6,500 to closing since you already provided the $1,000 upfront.
Closing Costs
Closing costs include lender fees, prepaids, title charges, recording fees, and other fees such as homeowner’s association dues and a homeowner’s insurance premium (see below for descriptions). Typically closing costs average about 3% of the sales price of the home, but they could be more or less. You may ask the seller to pay for all or part of your closing costs so that you don’t have to bring as much money to closing (these are called seller concessions or seller contributions).
Lender fees are fees associated with financing your home purchase through a mortgage lender.
- Processing fee (loan origination fee)
- Underwriting fee
- Appraisal
- Credit report fee
- Flood certification fee
- Prepaid interest
Prepaids or Impounds are expenses such as taxes, insurance, and private mortgage insurance (PMI). The mortgage company establishes an escrow account to pay for the prepaids during the term of the mortgage.
Title charges are fees associated with the attorney or title company searching prior deeds, court records, and property and name indexes to ensure that there are no liens or problems associated with the property. These title charges include:
- Lender’s and owner’s title insurance
- Attorney fees
- Title examination fee
- Document preparation fee
- Wiring fee
The county also charges a small recording fee to record the deed and the mortgage. Other closing costs can include homeowner’s association dues, homeowner’s insurance premiums (to cover possible damages to your home), and mortgage insurance (to protect the lender in case you default on the loan).
Agent Commission
The great thing about using a buyer’s agent to represent you in the purchase of a home is that it is no cost to you. That’s right! It is customary for the seller to pay 6% to real estate professionals to sell their home (3% to the listing agent and 3% to the buyer’s agent). On some rare instances, a seller may offer less than 3% to the buyer’s agent. For example, a for sale by owner (FSBO) may only offer 2% or 2.5% to a buyer’s agent. In that case your agent may ask you to pay the difference or they may just take the reduced amount.
Warranties and Inspections
Having a home warranty is totally up to you. If the home that you are purchasing is really old and has an old HVAC unit, refrigerator, etc., then you may want to ask the seller to provide a home warranty. If the seller does not agree to purchase a home warranty, you may choose to do so on your own. These typically range anywhere from $400 to $600 depending on the home warranty company and the coverage options.
If financing your home, your lender will require a home inspection and a termite inspection to ensure the home is safe and free of wood-destroying organisms. In Greenville, SC home inspections typically cost around $300 whereas termite inspections are about $100. Additional inspections that you may want to consider are radon, well water, and septic. Radon is a colorless odorless gas that comes from the ground and is known to cause lung cancer. A radon test can be conducted for $85-$125. If buying a large piece of property or if the attorney finds anything odd during the title inspection, a survey is also recommended. These are about $500 and up depending on the size of the property.
I hope this article has given you an idea of the amount of money that is required to purchase a home. If you have any questions or would like for me to send you the Estimated Buyer’s Cost spreadsheet, please contact me at (864) 293-4470 or jennifer@guidetogreenville.com.
