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HOW MUCH MONEY DO I NEED TO BUY A HOUSE?
BEFORE CLOSING 1. Earnest money--this is money you put down when you write an offer on a home. It is paid to your Real Estate Broker. It is usually 1% of the purchase price of the home for a resale home. ($1000 is typical, however). It is an ADVANCE on your down payment. It is returned to you if you don’t qualify for the loan during the financing contingency period or after the due diligence period if you decide not to purchase the house (Note: there is usually no due diligence period on a new home). The earnest money check is not deposited until the contract is negotiated and all parties have agreed to everything in the contract. 2. Credit Report, Appraisal Fee and Application Fee--this is paid to the lender when you apply for the loan (usually within 5 days after the contract). The credit report is typically $55, the appraisal fee is typically $295 and the application fee varies from lender to lender, usually $15-25. For FHA and VA loans, the appraisal fee is typically $375. These fees are not refunded to you even if you are not approved for the loan. 3. Inspection Fee--this is paid to the home inspector of your choice. The inspection is done during the due diligence period specified in the contract or if the home is being built the inspection is done when the home is complete. The inspection fee depends on the price of the house. It is typically $300 - 500. 4. Homeowner’s Insurance--an insurance policy (hazard insurance) must be purchased before closing from the insurance company of your choice. The premium depends on the price of the house. It is typically $400-1000. It is generally cheaper to use the same insurance company you use for your car because they can give you a multi-line discount. A copy of the policy and either a paid receipt or an invoice must be brought to closing. You can choose to pay for the policy at closing but you must bring an invoice along with the policy or ensure that your insurance agent emails/faxes it in. AT CLOSING Consult your GOOD FAITH ESTIMATE provided to you by your lender for an accurate estimate: 1. Down Payment--the remainder of your down payment (minus the earnest money already paid) must be brought to closing. All money brought to closing must be in the form of a cashier’s check made out to yourself. 2. Prepaids--this is the money your lender requires you to deposit into your escrow account for taxes, insurance and mortgage insurance (PMI or MIP) to get the account started. They have to make sure that there will be enough money in the account next year to pay the annual property tax, insurance and mortgage insurance bills. Typically, several months of taxes, 2 months of homeowner’s insurance and 2 month’s of PMI are required. The amount of taxes that must be escrowed depends on the month of the year in which you are closing and the county in which you are purchasing a home. 3. Prepaid Interest--you have to pay the interest on your loan for the remaining days of the month that you will own the home. For example, if you close on August 29th, your first payment will not be due until October 1. That October 1 payment pays for the previous month of September. Mortgage payments are made in arrears. Therefore, at closing, you must pay for the remaining days in August that you will own the home--the 29th, the 30th and the 31st. That is why it is cheaper to close at the end of a month than at the beginning. 4. Owner’s Title Insurance--this is OPTIONAL insurance that you can purchase at closing. It protects your investment in the property if there were ever to be a title problem. Of course, the closing attorney has checked the title prior to closing, but they cannot check for things that were never recorded at the court house nor can they check for fraudulent signatures or heirs to an estate. The lender will require lender’s title insurance for the loan as part of the closing costs, but OWNER’s title insurance is not required in Georgia. It is a one-time fee and protects you for the rest of your life concerning this property. The cost of it depends on the amount of your down payment and the loan amount. It can be purchased after closing, but is always cheaper at closing. Owner's Title Insurance is highly recommended. 5. Prorations--If the property tax bill has already been paid for the year, you will have to reimburse the current owner for those months/days that you will own the property this year. Also, if homeowner’s association dues are mandatory in the subdivision, you will have to pay a prorated portion of that bill at closing to pay for the remainder of the year. 6. Closing Costs--Consult your contract to determine who is paying the closing costs. If you are paying some or all of them, check your Good Faith Estimate from your lender to determine exactly how much you will need to have for closing costs. They are typically 2.25% to 3.3% of the loan amount depending on whether the loan is conventional, FHA or VA. 7. Survey--Surveys (a drawing of the property lines and where the house/fence sits on it) are optional now, but typically cost $350-$450 for a lot that is less than an acre. It is very wise to get a survey done so that you can ensure yourself that your house, fence and outbuildings are on your property and the neighbor's are not. NOTE: All money brought to closing must be in the form of one cashier’s check made out to yourself. (The owner’s title insurance can be a personal check.) You may not have the exact figure before closing of how much you will need. So use your Good Faith Estimate and bring a check for the amount indicated on it. If the amount on your cashier's check is too much, the attorney will refund the difference at closing. If it is not enough, they can take a personal check for up to $5000 (but some attorneys limit that to $500). PLEASE check your GOOD FAITH ESTIMATE to be sure that all the items discussed above are included. Pay specific attention to the following items to be sure that you have accounted for them: Document Prep, Tax Service Fee, Underwriting, Owner's Title, Homeowner's Insurance, and Survey. For more information contact: Joli Tripp
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