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The Cost of Buying a Home
What to budget for when buying a home
When purchasing a house, there are various financial considerations to consider. One crucial aspect is understanding the closing costs and debits associated with the transaction.
Upfront Expenses of Closing Costs
Before closing on a property, two primary closing costs typically require upfront payment: the home inspection and the appraisal.
The home inspection ensures the property is in good condition and free from significant issues. On the other hand, the appraisal determines the property's market value.
How Much Is a Home Inspection and Home Appraisal?
The home inspection may range from $350 to $500, while the home appraisal will be around $500.
While most lenders require these costs upfront, it's worth noting that there are exceptions, as some lenders offer programs that allow you to settle the appraisal fee at closing.
Extra Costs You Have to Pay at Closing
Debits are financial obligations that arise from certain recurring expenses associated with the property.
It's essential to understand the distinction between closing costs and debits. Closing costs encompass various expenses related to the transfer of ownership, while debits come from the funds you provide at closing.
How Are Debits Calculated?
For instance, property taxes may be due every six months, and let's assume they amount to $5,000 per year for illustrative purposes. Suppose you purchase the property on March 1st.
In this case, you would be responsible for paying the taxes from March 1st to June 1st, which would be half the annual amount. Consequently, at closing, you would reimburse the seller for their share of the taxes for that period.
What is an Escrow Account?
Lenders often establish escrow accounts to simplify the payment of recurring expenses, such as property taxes and insurance. A portion of your monthly mortgage payment goes to these accounts. For instance, if your monthly mortgage payment is $2,500, a percentage will go toward taxes and insurance.
Why Lenders Create an Escrow Account
By maintaining an escrow account, the lender ensures that your insurance and taxes are paid promptly on your behalf. Lenders do this because the house is collateral for the mortgage, and the lender must protect their investment. Failure to pay insurance premiums or property taxes could compromise the lender's collateral in unforeseen circumstances like fire.
If you want to buy a home in Northern Virginia, Washington DC, or Maryland and need guidance navigating the process, please call (703) 346-2776 or email Dan@greetingsvirginia.com.
