what are my costs as a buyer
PREPARE YOURSELF AND AVOID SURPRISES
The most common hurdle hopeful buyers face when considering whether or not to make the leap into home ownership is the cost of purchasing. Down payments, upfront loan costs, inspections, and many other fees that pile up to what seems like no end. Not every buyer has the cash on hand to make such a big investment up front. But not every home owner needs it. For the most part, fees and down payments are a constant. You can't sweet talk your way out of federally regulated rules and industry standards typically. And those who can usually have the cash it requires to bend the rules, which makes the whole point moot anyhow. However, while the fees and minimum down payments may be a constant, the sources to pay them can range broadly and ease the tension of producing them yourself. And the best part may be that the seller typically pays the commission of the buyers agent.
Minimum down payments vary depending on the type of loan a buyer may apply for. We'll look at the three most common loans: conventional, FHA, and VA.
-Conventional: 3% minimum that can be gifted.
-FHA: 3.5% minimum that can be gifted.
-VA: 0% minimum (limits on purchase price apply)
Gifted down payments must be sourced from a family member, but does not need to be immediate family. Washington state also has great down payment assistance programs that work with both FHA and Conventional loans. These programs may mitigate or even completely cover a down payment with an often 0% secondary loan.
After down payment comes the closing costs. The term closing cost can cover a great assortment of different fees. These fees can come from your lender, escrow, and title just to name a couple.
Most closing costs center around funding your loan and closing the transaction. Typically these costs are regulated and do not change much from one lender or title/escrow company to another. As a general rule expect your closing costs to be around 3% of the purchase price. Once the purchase price reaches around the 400k mark, the closing costs begin to decrease on a sliding scale. An example of some various closing costs are:
-Inspection, which is typically paid upfront.
-Appraisal, which is typically paid at closing.
-Loan Origination Fee
In an effort to decrease these costs a buyer has many options. The most common solution is to ask the seller to pay. Another option is to ask the seller to cover the costs, but offer a higher purchase price to balance the equation (keep in mind the home must appraise at that higher price). Down payment assistance will often cover a percentage of closing costs as well. Finally, they can be covered with a family members gift once again.
At this point you may have noticed that agent commission hasn't been mentioned. In Washington state the seller typically pays the commission for both agents involved. It may seem odd, but the role of the buyer's agent is to supply a ready, willing, and able buyer to the seller. And not only supply the buyer, but coach, guide, and keep them on track to close the transaction. What seller wouldn't pay for that? Also, with the exception of dual agency, the buyer's agent only holds loyalty to the buyer's interests. Not a bad deal for the buyer.
If you add it all up, total closing costs you pay could be anywhere from 0% to around 8% at the minimum. And while that 0% amount sounds fantastic, keep in mind you'll most likely be paying back most of those costs at some point during the life of your loan, such as down payment assistance. The goal is to get you into a home and building equity for yourself and the community. Home ownership shouldn't be a luxury only the wealthy can achieve. Creative solutions exist for many of the costs involved in the purchase of a home.
It is best to take this advice as a mere guide and rough idea of what options exist for some buyers. The details here are in no way a full explanation of the matter at hand. Not everyone will qualify for all options, and some may not qualify for any. Speaking to a local lender will account for the fine and exact details. If you're interested in speaking to a local lender, click the button below and get in touch.