How to Avoid Sticker Shock When Buying a Home

It happens all the time. A buyer wants to start looking for a home. They talk to a lender who asks them to send in:

  • Their last few paycheck stubs
  • 2 Years of Tax Returns
  • Social Security Number

Great news! They’re pre-qualified for a $350,000 home!

So armed with their pre-qualification letter, they embark with their Realtor on a house hunting adventure. After the 8th house, they’ve found it- It’s THE one! With much enthusiasm, they tell their loan officer they are ready to make an offer and ask them to run the numbers on their projected closing costs if they were to purchase this particular home, at this particular price.

Not a problem! Loan officer does the math, and then delivers the news….

“While your monthly payment is right where you want it to be, you’ll need $20,000 in cash to bring to the closing table”!!!

What?! How can this be? The home is $350,000 and we’re pre-qualified for that loan amount, so what is this $20,000?

Closing Costs.

There are many costs associated with buying  a home. Customary closing costs include but are not limited to:

  • Loan origination fees
  • Lender fees
  • Appraisal
  • Survey
  • Title fees
  • Taxes and recording fees
  • HOA application fees
  • Home owners insurance- usually charged a full year at closing.
  • Mortgage Discount Points if applicable

These fees really add up and if you’re also putting money down, that’s added as well, and usually cannot be rolled into the loan.

And don’t forget about your inspections!

Inspections are the buyer’s responsibility and payment for such inspections are due up front. For a general home inspection, depending on the size of the home, you’ll be looking at spending in cash anywhere from $225-$450, and that doesn’t include a termite inspection.

Some types of loans like VA or FHA may also require well, septic, and/or water tests to be preformed. For this buyer, they can easily figure on spending up to $1000 or more in inspections alone.

While all this may come as a shock to you, just remember it’s better to know now than when you’ve already found that dream home. This is a discussion every buyer, or anyone thinking of buying a home, should have with their loan officer at first connection. Have the heart to heart with them. If you’re concerned about what they quote you, ask them if there’s anything you can do to reduce your closing costs. Your loan officer should guide you and give you advice on what you can begin doing today, so that you can buy that dream home in the not too distant future.

You might also enjoy:

How to House-Hunt Like a Boss



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