Other Up-Front Expenses
The major portion of other up-front expenses is the deposit or binder you make
at the time of the purchase offer and the remaining cash down payment you make
at closing. In addition to the deposit and down payment, other up-front expenses
can include the following:
Inspections: In addition to inspections required by the lender,
you may make the purchase offer contingent on satisfactory completion of some
other inspections. These inspections might include: structural, water quality
tests and radon tests. You and the seller will need to negotiate these fees.
Owner's title insurance: You may want to purchase title insurance
for yourself so that if problems arise, you are not left owing a mortgage on
a property you no longer own. A thorough title search (going back to 1900 if
necessary) is often assurance enough of a clear title.
Appraisal fees: You may want to hire your own appraiser,
either before you sigh a purchase offer or after seeing the results of the lender's
Money to the seller: You will need to pay for items in the
house that you want and that were not negotiated in the purchase offer. Such
items may include appliances, light fixtures, drapes, or lawn furniture and
also fuel oil and propane left in tanks.
Moving expenses: If you are changing jobs, your new employer
may pay for your move. Otherwise, you must figure in the cost of moving, either
truck rental and hired help or a professional mover. Shopping around for moving
services can pay off. You will also need cash for utility deposits (phone, cable,
and the like).
Escrow account funds: In the purchase offer, you can request
that the seller set up an escrow account to defray any costs of major cleanup,
radon mitigation procedures, house painting, or other items. Also, if you have
not had a chance to try out some appliances (the furnace if you buy in the summer
or the air conditioner if you buy in the winter), you may request an escrow
account to cover repairs if necessary.
Depending on the purchase offer contract and contingency clauses, you may find
you have some expenses immediately upon moving in. For example, suppose your
purchase offer contract has a clause making the purchase contingent on a satisfactory
structural inspection, and the inspector determines that the house will need
a new roof. You could negotiate to have the seller arrange for the work to be
done, but this will probably delay the closing date--and you may have to agree
to a higher price for the house or to cover some of the expenses of the new
roof. Or you and the seller may be able to split the cost of a new roof, put
on after you move in, using estimates from a contractor of your choice, each
of you putting funds into an escrow account for the new roof. Or the seller
may be willing to reduce the sale price of the house by an amount you think
is fair. In either case, shortly after moving into your new home, you will need
cash for a new roof.
Time investment: An often overlooked major up-front cost in
buying a home is the time investment. The average household spends about 4 months
house hunting and looks at an average of 20 houses before closing a deal. In
addition to shopping for a home, you also spend time trying to find the best
mortgage terms and an attorney who will assist you with the legal issues in
purchasing a home.
How much time you spend looking for a home, a mortgage, and an attorney depends
on your location. You will spend less time if you know what you want in a house
and know much you can afford, and working with real estate agents will help
narrow the choices. How many mortgage lenders are in your area? You can reduce
time costs in mortgage shopping by keeping an eye on advertisements and use
the internet to search for the best deals.