A Deep Dive into Buying and Selling A House

Embarking on purchasing or selling a home is thrilling and daunting, especially regarding financial considerations. Beyond the initial price tag, there are a plethora of costs that can significantly impact the bottom line. Let’s explore the intricacies of these transactions, shedding light on the apparent and hidden expenses involved.

Unveiling the True Costs

When entering the realm of homeownership, attention often gravitates toward the down payment and closing costs. While these are the highest-ticket items, it’s essential to acknowledge the myriad of additional expenses that may catch buyers off guard during the closing process.

Closing Costs

Closing costs encompass a spectrum of fees, including loan origination fees, title insurance, property taxes, escrow fees, homeowners association fees (if applicable), and recording fees. Typically ranging from 2% to 5% of the home’s purchase price, these costs represent a lump sum payment due at closing. The loan estimate sheet will show the amount due, but the attorney’s office will calculate the final total due at closing.

Down Payment

A cornerstone of home buying, the down payment constitutes a percentage of the property’s purchase price paid at closing. Typically ranging from 3% to 20% of the home’s value, the down payment influences mortgage terms and monthly payments. Be sure to review the loan type and its requirements to avoid any surprises down the road.

Interest Rates

Interest rates directly impact the affordability of a mortgage. With the current national average for a 30-year fixed rate hovering around 7%, buyers may have to reassess their desired purchase price.

For example, with a 30-year fixed mortgage of $400,000 at 7%, principal and interest will cost $2,661. A 5% rate would lead to a payment of $2,147 for principal and interest. If a buyer is budgeting for a P&I payment of $2,147, they would only be able to afford a total mortgage of ~$325,000 in this current environment.

Earnest Deposit

An earnest deposit, also known as earnest money or a good faith deposit, is a sum of money that the buyer provides to a seller as a sign of their serious intent to purchase the property. Depending on the state, the deposit is held in escrow with the title company or real estate broker. The deposit often ranges from 1% to 2% of the home’s purchase price, but depending on the market, buyers may want to exceed the average to make their offer more attractive.

• The Good News: Although this deposit is made during the early stages of the contract, it will be applied towards the closing costs and down payment. Buyers can get their earnest deposit back through contingencies, mutual agreements, or legal remedies.
• The Bad News: Buyers will not have access to this deposit throughout the closing process, meaning they should only submit an amount that won’t cause a financial burden. Additionally, suppose a buyer fails to fulfill their obligations under the purchase agreement, such as backing out of the sale without a valid reason. In that case, the seller may be entitled to keep the earnest deposit as compensation for their time and effort.

“Hidden Costs”

Amidst the excitement of acquiring a new abode, buyers mustn’t overlook the “hidden” expenses lurking beneath the surface. Here are a few examples of additional costs that you should prepare for.

• Home Inspection: If the contract includes a home inspection, the average cost will be around $300 – $500¹.
• Additional Inspections: Depending on the age, location, and condition of the home, additional inspections may be needed that go a few steps further than the home inspection. The most common of these specialized inspections are Radon testing, termite and pest, mold, and foundation. Although it may seem more straightforward to avoid these, it is wise to pay for them now to avoid substantial costs down the road.
• Appraisal Fee: The buyer is responsible for the appraisal fee. Typically, the lender requires this payment upfront, but the fee can sometimes be included in the closing costs. On average, appraisals cost $400². However, this fee can easily double depending on the location, complexity of the property, and loan type.
• Attorney Fee: These fees have a wide range of potential costs. A few factors that can influence this cost are the complexity of the transaction, the location of the property, and the decision to pay a flat fee or an hourly rate. Buyers should thoroughly research their options in order to choose the right real estate attorney.
• Moving Costs: It is easy to forget the costs associated with moving while focusing on everything else above. If buyers want to move without hiring help, they should budget for the moving truck, packing materials, and any other items that may be needed. If assistance is required and hiring movers is the preferred option, the average cost of a local move is $1,250³. For a long-distance move, the average cost is $4,890³.

1. How Much Does a Home Inspection Cost? – Realtor.com

2. Home Appraisal Cost: How Much Is a Home Appraisal? – Zillow.com

3. How Much Do Movers Cost? – Moving.com