It’s always a good idea to buy less house than you can afford .
Aside from your monthly mortgage payment, you also have to have cash at the ready for a down payment, which is usually 20% of the home’s price.
And there’s one more cost that’s easy for homebuyers to overlook: closing costs.
Nicole Lapin, author of “Rich Bitch: A Simple 12 Step Plan for Getting Your Financial Life Together … Finally,” refers to closing costs as “the zinger beyond having the money for the house itself.”
According to Lapin, ideally, you should set aside 3% of the purchase price of your home — in addition to your down payment — to go towards closing costs.
So what actually are closing costs? Here’s Lapin’s breakdown.
Lawyer’s fees. Lapin says that while not everyone will need a lawyer when buying a home — there are only about 10 states that actually require buyers to have a lawyer, and they’re mostly in the Northeast — it can be a good idea.
Especially if the sale is particularly complicated, or if your real estate agent isn’t the most savvy, “… you may need to hire a real estate attorney to draw up contracts and negotiate terms with the seller (or the seller’s attorney).”
Title insurance. The author says title insurance is the main reason you might need a real estate attorney. Lapin writes, “It’s insurance for the amount of the mortgage loan, and it protects the lending financial institution’s investment.” Title insurance also insures the homeowner for the price of their home.
Home appraisal fees. Lapin advises knowing the true value of your home before you make the decision to purchase it. How do you figure that out? “Hire a third-party appraiser to check it out and determine the actual value,” she writes.
Property survey fee. It’s important to know where your property starts and where it ends — especially if you’re planning on making changes to your new home. “Gotta know where the property line is so you don’t piss off your new neighbour when you inadvertently build a fence on his property,” Lapin points out.
Home inspection. According to the author, once you sign for your home, you’re not only purchasing the home, but you’re also purchasing any problems it may have. So it’s a good idea to find out about these problems when they’re still the seller’s and not yours.
“This [home inspection] is to make sure the property is in the condition the seller says it is, and to uncover any potential problems before you sign on the dotted line,” Lapin writes.
Pest inspection. This one is pretty self-explanatory. Lapin says that termites and other house-wrecking varmints are “all part of playing house.” But the goal is to at least move in to your house termite and varmint-free.
Local property taxes. According to Lapin, these vary widely based on where you choose to live.
Homeowners insurance premium. Lapin compares buying a home with buying a car, in that you won’t be able to go through with the purchase if you don’t have proof of insurance.
Besides the costs listed above, Lapin says you’ll also pay the local sewer fees, local municipality realty transfer fees, and clerk fees for recording the transfer of deed and mortgage — and you might be responsible for some miscellaneous fees, too.
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