Buying a House Hidden Costs: How to Buy a House
As the real estate market changes and California is the litmus test to the rest of the nation in terms of laws, legal issues and costs. In how to buy a house like an expert, you need to look at the seldom disclosed extra costs in the transaction. Saving money is the main criteria when you are looking at buying a house. Buy low sell high is the mantra of our society, buy your next home the smart way and save some cash for “a rainy year”.
As the housing market continues to favor first-time home buyers, one aspect of buying a house are the hidden or forgotten costs that many do not take into consideration particularly when they are trying to figure out if they can afford to take the plunge and buy a home.
Recently a young couple wanted to get the most for their money and felt that the market was right and they purchased a three bedroom, one bath home for $350,000. However, the purchase price did not include many other costs associated with buying a home which included $750 for a home inspection and $4,250 in closing fees.
Before someone does decide to become a home owner they need to find out if the mortgage down payment will be a deal breaker since lenders are now requiring more money upfront as their standards have tightened over the last year. For someone who is not a well qualified borrower there are many new loan fees that could be become roadblocks to home ownership.
If your clients are now ready to stop paying rent and are ready to buy a home then here are five costs they need to consider before closing the deal.
Buying a House Ready Their Credit Report
One of the first aspects of buying a house is seeing if the buyer is a good candidate as a borrower. They can start by cleaning up their credit report. While the cost is usually not that great to do this, it's important for potential borrowers to understand that today banks are much more selective when it comes to making loans.
When home buyers are ready they are about to borrow a very large amount of money and lenders are going to be looking over the borrowers credit report with a fine tooth comb.
Most people know that a higher FICO score will give them much better negotiating power when it comes to the terms of the mortgage and the total amount of the loan. Great credit scores range from 760 to 850, while at the same time credit scores that are below 640 could force the borrower to pay a higher interest rate on the loan.
Your clients are entitled to get a free annual credit report from each of the three major credit bureaus at a cost around $15.95 at http://www.myFICO.com.
The Down Payment in Buying a House
Today with 30-year fixed mortgage rates below 5 percent more lenders are now requiring a bigger down payment of 20 percent or more.
The good news in making a bigger down payment the less they will owe on the mortgage and at the same time they will get a better interest rate. Unfortunately, if their down payment is less than 20 percent they will most likely need to pay for mortgage insurance which can add an additional cost of $100 or more a month.
The pre-approval process will let them find out what the down payment will need to be in order to secure the loan. Luckily, this is usually free from the lender and it will evaluate their financial position and will determine the terms of their loan.
If your clients get a pre-approval before they begin to look at houses with you it will make them more attractive buyers and they will be able to focus on homes that are in their price range saving you and them a lot of time and frustration.
The Fees
For most borrowers the fees will be based on their credit score and history and will vary significantly based on their financial situation. As a result those fees can be as much as 3 percent of the mortgage which on a loan of $100,000 will be $3000.
Also closing costs should be considered where fees are charged by the lender that cover items like credit reports, documentation, appraisals, and administrative possessing.
Since the lenders are required by law to itemize all the closing fees, some of the basic fees might be negotiated down saving the borrower some money.
Inspections
There are many inspections to consider including home inspections and possible inspections for lead paint, radon gas and pests.
On average home inspections are around $700 which checks on the home's structure as well as the heating and water systems.
Inspection costs will vary and sometimes inspector may offer comprehensive packages.
Sometimes the seller may pay for these inspections; however, it's more likely that the buyer will pay the bill and at times they might be included in the closing costs.
Maintenance Costs
Many new or first tome home buyers make the mistake of only focusing on the monthly mortgage amount and forget about all the maintenance costs that come with having a home.
Usually, the utility costs will be higher than what they were paying when they were renters. Many times renters won't even pay for water and/or electricity and if these costs are not considered when buying a home it may put an unexpected pinch on their monthly costs.
Despite utility fees, there are maintenance issues to consider such as repainting the house from time to time as well as repairs to fix leaky faucets or broken ceiling fixtures just to name a few.
As a house gets older and more things break then more likely the maintenance fees will grow too.
One way to help offset the maintenance fees is through a home warranty protection plan. When something breaks all they have to do is call the home warranty company and they will come out and fix the problem. All they home owners will have to pay is the service charge for the repair which is usually between $30 and $50 each time. Home warranties, on average, run anywhere from $350 to $500 a year and can be a true cost saver when something big breaks like an air conditioner compressor.
So, when your client is ready to go from renter to homeowner, you will be able to help them through this difficult process by keeping them informed of all the items they may not be aware of and in turn helping them will make you a more valuable asset. You may be rewarded with more clients in the future from their referral.
Property search records can tell you a lot about a prospective real estate bargain or bust. This can take some time if you want to know more about a properties information than a typical Zillow or Trulia search. Get to know the local area in terms of schools, crime statistics, local property valuation (rising or falling) and other research data. When you have zeroed in on a specific house (or two) you may want to get a natural hazard disclosure form along with a CLUE report. The CLUE will need the sellers authorization the NHDR (natural hazard disclosure report) is available to the public without any authorization. As you go down your checklist on how to buy a house visit a few different resources for the critical information you need before buying a house.