As an informed home buyer, you will certainly want to have a professional home inspection as a contingency with any offer you place. This way you can walk away if there are any unexpected repairs. When these things come up, either the seller fixes the issues, comes down on the sale price or they hold their ground and expect you to pay. You can expect them to hold their ground if they have already come down on their asking price or are covering closing costs. As a part of your home inspection, you should also have a termite, radon, and chimney inspection. These are not included within a typical home inspection, but are small adders that give you a better picture of the condition of the whole home. The home inspection, radon, termite and chimney inspection will run you ~$750.
Upfront Escrow Fees
An escrow account is a legally binding agreement where an institution (in this case your mortgage lender) takes money from you on a monthly basis to pay other agencies or companies. In real estate, the escrow accounts are used to pay for you home owner’s insurance and property taxes. When you close on the house the lender typically collects 3-12 months of home owner’s insurance and property taxes to help cover the portion of the year that you need to pay back to the seller. They may have already paid for the whole year of property taxes and since you are moving in mid-year, you owe them for the time you will be the owner.
Lenders charge fees in the range of $1000 to run your credit, prepare paperwork, process the mortgage, etc. This fee is a part of what is called “closing costs”. These are certainly negotiable. Banks will compete with each other using these fees. We got quotes from 3 different lenders - call them Lender A, Lender B, and Lender C. We decided to go with Lender A. When we emailed Lender B and Lender C to let them know we chose someone else, Lender B came back and offered to waive all lender fees to try to win our business. It did not affect our decision, but can be used if two lenders have very similar offers.
A home warranty is not homeowner’s insurance. It is a policy that covers the core functionality of the house, hot water heater, furnace, kitchen appliances, roof, etc. It usually covers the first year you are living in the home and can help you with repairs for major items. It is a good idea to ask for the seller to buy this for you as a part of your offer. Even if they don’t, you have around 30-90 days after moving in to decide if you want to purchase a policy. This lets you get in the house and encounter any major issues and decide if a policy will pay off.
Investing for Resale Value
As you begin your renovation plans and envision your dream kitchen or sun room, make sure you are keeping your investment in mind. There are some renovations that pay off much more than others. You are not guaranteed to get 100% of the renovation cost back in value in your home. Make sure you are doing the right projects first, if you know that you will not be in this house forever. That way, you can enjoy them now and later reap the benefits of increasing your home's value.
Alright, that's all folks! You are officially equipped with enough information to go about buying your own house. Now begins the fun part - house hunting!