- Earnest Money is normally funds, but can be anything of value (as agreed upon), that buyers submit to show good faith once a contract is negotiated. This tells the seller that you are serious about purchasing the home. Earnest money is held by the escrow or participating real estate company and is applied to your down payment/closing costs. Click here for more information on earnest money.
- Most lenders require an appraisal. Appraisals are designed to protect the lender and the buyer by ensuring that the home’s value and the sales price aligns. Appraisal fees are generally paid to the lender and usually run between $300-$400. Click here for more information on appraisals.
- Inspections are essential in the buying process. Standard home inspections cover exterior elements, roofing and attic, plumbing, systems and components, appliances, electrical and structural evaluations. Inspection costs vary based on the size of the home and usually start at $300. I highly recommend a termite inspection, which costs around $75. Other inspections to consider are asbestos, radon, mold, and lead. Click here for more information on home inspections.
- The amount of the down payment can vary based on the type of loan that you have and is calculated by a percentage of the purchase price. FHA loans require the least amount down at 3.5%. Some lenders offer conventional loan products for as little as 5% down. One thing to remember is that the smaller the down payment, the higher the note, Which is mainly contributed to mortgage insurance among other things. Ideally, you would want to put down 20% if possible to eliminate the mortgage insurance. Here are some tips for saving for your down payment. Click here for more information on down payments.
- Closing costs are taxes and fees required to complete a real estate transaction. Buyers are responsible for closing costs; however, these costs are usually shared by the buyer and seller. The amount each side contributes is negotiated in the contract. Occasionally, one side may pay a larger share of the closing costs depending on the market. For example, in a buyer’s market, a seller may pay a larger share of the closing costs and vice versa. Closing costs in Tennessee are among the lowest in the country, generally ranging between 2-4% of the purchase price.
When purchasing a home, the buyer incurs various costs. There are often times in which you may qualify for assistance programs or negotiate seller assistance to offset costs. However, you should be prepared going into the process.