What will it will cost you up front
to buy a home?
In June’s article we discussed monitoring your financial health prior to looking for a home. This month you will learn about what costs will potentially be required between signing the contract and closing on your home. Please note that all of the prices stated are approximate for Western North Carolina and not to be relied upon. If nothing else, pad them to make sure you aren’t short financially.
Being prepared to take the leap into home ownership will come into play especially when you have to make a split-second decision on a potential home in a seller’s market. Check out the September, 2016, article on what buying in a seller’s market means for you.
How much money will I need to start?
Each state has its own set of rules about approaching an Offer to Purchase (OTP) contract. Once you are under contract, North Carolina has a Due Diligence Period (DDP), generally 30 days. “Time is of the Essence” here, meaning that after 5 p.m. on the 30th day, the buyer is committed to the contract. During the DDP, it is the buyer’s responsibility to check out everything about the home. This is when there will be many potential inspections to ensure that the property you are buying is what you are expecting.
Once you have an accepted offer, you will immediately be expected to write personal checks. North Carolina has an optional Due Diligence Fee. You and your REALTOR® will decide if it is appropriate and the amount. This is often used when you are competing against other interested buyers to sweeten the pot and usually runs around $500 depending on the price of the property. This check is written directly to the seller and is nonrefundable unless you close, when it is credited towards your sales price.
The Earnest Money Deposit (EMD), a part of every contract, usually runs $1,000 and up depending upon competition and the house list price. This check will be cashed but be held in escrow by either the listing real estate firm (such as Coldwell Banker King) or with the buyer’s attorney and will be credited towards your final sales price. If during the DDP you don’t like the results of the inspections or if you choose to terminate the contract for any reason, your EMD will be refunded in full. The buyer and seller must both sign the termination agreement prior to the 5 p.m. deadline on the last day of due diligence; otherwise you can kiss that money goodbye.
Your lender will also immediately request payment for an appraisal, usually around $500 but can vary. This can often be put on your credit card and will be credited to you at closing.
Your REALTOR® will guide you about what inspections you will need. Sometimes this can be specified by the lender, such as the Navy Federal Credit Union, or the choices will be discussed with your agent. All these inspections will be paid for up front and can generally be put on a credit card. None of these costs will go towards your final sales price; they are simply to keep you from making a bad decision that you might well regret later if you don’t do them.
The types of inspections vary greatly depending on the property. If you are purchasing a condo, for example, you are only buying the interior living space of the building. Therefore a home inspection is often the only thing that is needed and costs around $400.
If you are purchasing a Single Family Residence (SFR) then the choices can vary greatly. This will include basic inspections: a home inspection ($400), pest ($100) and radon ($100). Radon is an odorless, colorless gas that is produced by the natural breakdown of uranium in soil, rock and water. The main source of indoor radon is emitted from soil into a building and long-term exposure has been attributed to cancer. Don’t skimp on that one.
A survey is always strongly encouraged though not required. They can run from $500 for a small lot to $6000 for acreage which obviously takes a lot longer to complete.
I had a buyer for a home on a corner lot in an upper-end Asheville neighborhood. None of the adjoining homeowners had ever gotten a survey and everyone assumed the fence line was the lot line. Not so. My buyers initiated a survey that revealed they lost six feet in the back. The lot lines described on the deeds of my buyer’s and their side neighbor’s yards showed an overlap of 875 square feet. Both agreed to split the land down the middle. We made sure both deeds were corrected to reflect the changes. Several attorneys and agents told me “not to worry about it” but I thought it essential these issues not resurface when it came time for either homeowner to sell. Lesson learned: get a survey – always.
Depending upon the age, location, and structural integrity of the house, more extensive testing may be necessary. If the property is on a septic system, testing and clean-out will run around $400. To have a well inspected, the price can vary from $100-$250 depending on what types of bacteria you want tested. If there are concerns about the foundation, a structural engineer report costs around $500 and may be well worth it. Potential mold might require an inspection and report which starts around $275.
Occasionally you may run into situations that require a specific skill set. While we are seeing less of these, buried oil tanks still exist. The concern is oil seeping into the ground which needs to be analyzed and costs about $275. If your potential home is close to a creek or river, you may well need to get an elevation certificate to determine if FEMA will require you to have flood insurance. Depending on many factors this could cost from $500 to several thousand dollars.
The good news is that you probably won’t need all these reports. My mantra is to be overly cautious and prepared for unearthed problems. I heard of a young family who didn’t feel they could afford to have the well tested. Now they wish they had since it turned out that the well was dry and they now own a home with no access to water.
What will my closing costs be?
To be on the safe side, anticipate your closing costs to be between 2% – 3% of the loan. This covers a great deal of what it has taken to get your loan approved and to the closing table. These include all lender fees, attorney fees, title search and policy, your portion of the annual current property taxes, and prepaid expenses to the mortgage company such as monies held in escrow for next year’s property taxes and insurance. Obviously, if you are paying with cash, your expenses will be limited to the attorney side of the transaction.
Are you trying to scare me???
My goal is not to freak you out but to give you a clear, yet worst-case scenario of what funds you might need. When you are looking at houses and find one that you love, ask your REALTOR® what inspections will be necessary. Keep these in mind when you are looking at houses near creeks, or when you see water, potential mold, or serious cracks in the basement or older homes in general. What you think might be serious may turn out to be nothing, but better to know before you close than to find expensive problems afterwards. Be Prepared Financially and you will be fine.
Peggy Crowe of Coldwell Banker King considers herself a “Forensic REALTOR®“ meaning that she is always on the lookout for potential problems to ensure that when it comes time for you to sell the home you are now buying, there will be no surprises. She can be contacted at 828-318-4423 or firstname.lastname@example.org.