The response to this Question from Homeowners has prompted me to do a similar article to address an issue which is also on the minds of many homebuyers.  Although, the notion that you can buy a home for NO MONEY down has come under intense pressure in recent months, buyers have always wondered about what the REAL outlay would be when they decide to purchase a home. 

In Part 1 of the Series, we talked about some Intangible Coststhat impact the homebuying process with regards to Time & Energy.  In this segment, we will focus on some Tangible outlays. 

We will discuss the costs which may be required to obtain a Mortgage and the Earnest Deposit which will be a part of submitting an offer on the property you hope to purchase.

MORTGAGE COSTS:  Depending on the company and the mortgage you qualify for, you may be required to pay some of the fees to process your mortgage prior to your closing.  The most common costs that mortgage lenders may require are:

1.  A Deposit from you sometimes known as a Commitment Fee which secures your commitment to the lender and their commitment to reserving money at a particular interest rate for you.

2.  Payment of the cost of the Appraisal ~ this is a bill they incur once an appraisal is ordered even if you do not purchase the home.

3.  Payment for a Survey ~ also a bill which is incurred and must be paid even if you don't purchase the home.  If this is a part of your purchase agreement, the mortgage company may require payment when the survey is ordered.

4.  Program Fees ~ If you are applying for certain types of mortgage assistance programs such as the MCC Tax Credit available through the State of Michigan when funding is available, there is a fee which you will be required to pay for processing this program.

* If all of these costs are required, you may need to have up to $1,000 to cover them.  Many lenders and programs will not require any of them, but if they do...having this money set aside will ease a lot of stress.

REAL ESTATE RELATED COSTS:

There are 2 significant cost associated with the Real Estate portion of purchasing your home.  These are your Earnest Deposit and the Cost for Conducting a Home Inspection.

EARNEST DEPOSIT:  Although, technically in the State of Michigan, Love & Affection can be the deposit in Earnest for a real estate purchase, very few home owners are willing to take their Valuable properties OFF the market for this stated term of endearment.  Ordinarily, home owners want something more tangible...real cash which shows that you are serious about moving forward. 

Keep in mind that an Earnest Deposit may be retained by the home owner in the event of a default on the contract by a home buyer.  Earnest Deposits can vary, but a helpful rule of thumb is approximately 1-5% of the Total amount of the purchase.  This money should be kept in an escrow account with your Broker or a reputable Title Company.

HOME INSPECTIONS:  Home Inspections are highly recommended.  When you decide on a home to purchase, it is wise to pay for it to be inspected by a licensed professional.  It makes little sense to be willing to spend sometimes hundreds of thousands of dollars on a financial investment and then skimp on several hundred dollars to check out whether it is a solid investment. 

Home Inspection costs can vary considerably depending on the components which you are checking out.  A Full Home Inspection which includes:  Heating/Cooling/Ventilation & Air-conditioning, Structural Inspection, Termite & Wood Destroying Pests, Radon, Plumbing & Electrical will run anywhere from $350 to up to $500.  This is an out of pocket expense which may be reimbursable through the provisions allowable in your mortgage loan, however you must pay for it first...and then be reimbursed later.

*The cost of the earnest deposit and Home Inspection are outlays which will occur shortly after you get an acceptance on your offer.  Plan ahead to have this money available in a checking account.  Lenders will normally not allow you to place your earnest deposit on a credit card and most real estate and home inspection companies are not set up to recieve credit card payments either.  Being prepared by having a working knowledge of potential costs is the best way to ensure that your home purchasing process is a smooth transaction.

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