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 Many people believe that living the “American Dream” means owning a home. Becoming a homeowner requires more than financial stability; find out about all the expenses that come with the purchase of a home. The following are the most common:
1.- Pre-Approval: The process in which a loan entity will closely check your credit history, employment, bank accounts, stock, mutual funds, other income, and debts. Pre-approval charges vary depending on the loan officer, but are usually between $35 and $100. Some financial entities provide this service at no cost.
2.- Earnest Money: The amount of money which is given to the seller together with a purchase offer. This deposit is not a fixed amount; it depends on factors such as interest, type of market, negotiations between you and the seller, and your financial status. Although the amount of earnest money is usually between 1% and 5% of the overall home value, it can sometimes be lower than 1%, depending on the factors mentioned above. Once the offer has been accepted, this money is usually used towards the down payment or closing costs. For those who purchase a home through HUD* (Housing and Urban Development), this deposit ranges between $500 and $2,000. 3.- Down Payment: An ideal down payment is 20% of the total property value, but in reality not everyone has this amount available. We recommend that individuals in this situation acquire Private Mortgage Insurance (PMI), through which a loan officer is protected against any buyer who does not comply with loan terms. Some loan officers provide loans with “ø down payment.” Keep in mind that the higher the down payment, the lower the mortgage payments will be. In the event that you receive government assistance, the down payment will range between 1% and 3%.
4.- Closing Costs: Closing is when the seller transfers the property to the new owner. Some of these costs can be negotiated or paid by the seller. Although closing costs vary depending on the loan officer and location of the home, you can expect to pay between 2% and 6% of the total loan. It is important to take into consideration certain fees that accompany the closing costs such as property inspection, investigation, transfer and insurance of title, appraisal, lawyer services (if applicable), home insurance, and property taxes that are included in the closing costs.
Because of the large number of expenses involved in the purchase of a home, it is recommended that you consult an agent for more details about this subject. Listen to the advice of specialists, they will guide you in the right direction!
*HUD or Department of Housing and Urban Development of the United States is dedicated to increasing the number of homeowners and helping low-income families have access to homes. www.hud.gov / Los Angeles Office: (213) 894-8000 Santa Ana Office: (714) 796-5577
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