Preparing to buy a home is not only about knowing where you want to be or what type of home you’re looking for. Equally important is being financially ready for certain cost associated with the home purchase process. Five items I want to discuss are down payment earnest money, inspections, closing cost, and appraisal gap coverage.
The down payment for a loan is probably one of the most well-known costs associated with buying a home. But contrary to popular belief you don’t have to have 20% down to buy a home. Most lenders offer down payment options between three and 15% as well. Figuring out the right amount of your down payment will depend on balancing your available cash on hand, what type of reserves you want to keep, and how much of a monthly payment if you’d like to have each month.
Earnest money is an important part of the purchase contract as it’ll be money that you deposit upfront once you go under contract on a home. This amount is normally one to 2% of the purchase price. This money will remain in an escrow account and then go towards your down payment at closing.
Paying for inspections is a critical part of buying a home. Depending on the type of property my team and I typically recommend doing a general home inspection a radon test and a sewer scope. There are other inspections you can do but these three will give you a great baseline. The typical total cost for these inspections could fall between $600 and $800.
Closing costs are fees that you will pay at closing and cover the cost of things like lender origination fees, points charge for your loan interest rate, title insurance fees, funds to kick off your escrow account with the mortgage company, recording fees, and your property insurance.
One of the most unusual costs to prepare for especially in our current real estate market is what we call appraisal gap coverage. In a high demand and fast-moving real estate market like we’re currently experiencing It’s normal to be in a competitive offer situation every time you submit an offer on a home. When that happens the purchase price will most likely go much higher than the list price. Has a buyer seeking a home it’s imperative that you start thinking about how you will cover that difference between list price and purchase price if the appraisal comes in low. Can you make up the full gap? Can you provide a certain dollar amount over a low appraisal? These are questions to really start considering before you submit your first offer.
My team and I are experts in the purchase process here in the Denver metro area. We would love to make sure you are prepared and fully confident in moving forward with seeking an awesome home here in our beautiful Colorado. Reach out to us anytime if you have questions or you want to learn more. We look forward to serving you!