This article is the last in a 5-part series about how buying a home impacts your finances. Missed the rest? Start here.
You found a house you love, put in an offer—and it was accepted. Like millions of home buyers before you, you may find yourself staring at the ceiling in the middle of the night, wondering about what comes next: “How much money do I need to bring to the closing? What is mortgage escrow? How much will it add to my monthly bill? When is the appraisal done when buying a home? When do we get a home inspection? What if they find something wrong with the house?”
The home search may be over, but these final steps can be a doozy. Don’t rush through them, though, because there may be more opportunities to save money before you’re jangling those keys in your pocket.
Once your offer is accepted, it’s time for a home inspection and appraisal. For both, a certified professional will check out all aspects of your future home. The process differs depending on if you buy a resale (a previously owned home) or new construction. During these final steps, there are ways to save, particularly when buying a resale.
The cost of a home inspection varies by region, but typically costs between $300 and $500.1 However, it could save you thousands of dollars. During this detailed examination of your soon-to-be home, the inspector will take stock of the current state of all aspects of the house—from the roof to the basement and everything in between—using a home buying inspection checklist. Even though a home inspection isn’t mandatory, most real estate agents highly recommend getting one.2
It can be disheartening to discover problems with your future home. But it can also be an opportunity to save money. Once you know what the issues are (like mold or faulty wiring), you and your real estate agent can contact the sellers.
There are a few options at this point:
While you can decide if you want the home inspection or not, an appraisal is a mandatory part of the home buying process. Although the mortgage company requires it, the buyer has to foot the bill.
An appraisal typically costs between $250 and $5003, depending on where you live and how large the home you plan to buy is. But, the results of the appraisal could save you money in equity or help you negotiate a better price for the house. For instance, most mortgage lenders won’t give you a loan for a home if the appraised value is less than the agreed-upon price. So, if the $200,000 house that you plan to buy is appraised at $185,0004, your realtor will have to talk to the seller to come up with a plan. Many times, at this point in the process, the seller is eager to close the deal and will lower their price, which can work in your favor.
It’s rare for the appraised value of the home to come in higher than the accepted offer, but if it does, that’s great news. That means you have built-in equity. For example, if the accepted offer is $200,000 and the appraisal states that the house is worth $225,000, you’re starting off with $25,000 in equity right off the bat.
You’ve probably been doing the math in your head to figure out your monthly mortgage ever since your offer was accepted. Keep in mind that in addition to your mortgage payment, you’ll also have to pay taxes and homeowners insurance, which means you might have to save more.
Before you facepalm, behold the benefits of an escrow mortgage (which most lenders will require that you get): An escrow account combines those taxes and insurance into your monthly payments. Your yearly taxes and insurance will be divided by 12 and added to each mortgage statement.
This means that, yes, your bill will be higher. But, you won’t have to save up separately to pay your property taxes or homeowners insurance. You also won’t be blindsided by a big bill once or twice per year.
The day you’ve waited for has finally arrived—the closing. Remember the funds you’ve been putting aside for the closing? Now’s the time to use them.
At least 3 business days before your closing date, your lender will give you a closing disclosure statement5, which will explain what the closing costs will be. Because you won’t get that information until days before the closing, it’s important to continue to save while you go through the process of becoming a homeowner.
There’s no absolute rule on what’s included in the closing fees. Each lender has their own system, but often fees for title insurance, attorneys, or your appraisal and home inspection may be wrapped in as well.
After you write the check, you can tick one more thing off your list of things to do when moving into a new home. It’s time to sign the contract and finally get those hard-earned keys. Call the movers and pick the paint colors: You saved, you prepared, and now you’re ready to start life in your own home.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
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