Yet another quick article that outlines one of the basics in buying a home.
When you buy a car, you also pay tax, license fees, document fees, and registration. These are all one-time costs. Some of them are paid up front, and some can be rolled into your loan.
The same goes for a house. When you purchase a home, the following out of pocket costs are the most common:
- Downpayment – how much you can bring to the table to reduce the total loan amount.
- Mortgage Insurance – a premium required when financing through an FHA loan paid up front.
- Title Insurance – to insure your home has clear title when you purchase it. You don’t want some strange problem with the property down the line. Title makes sure that there are no cloudy issues to cause future problems.
- Home Warranty – a policy that helps cover potential repairs on specific parts of your house.
- Loan closing costs
- HOA Transfer Fees
- etc., etc.
The bottom line is this. When you buy property, you have to have something on hand to cover some of these costs. BUT, some of these costs can be covered by the seller.
In order to reduce the cash-out-of-pocket-burden, sometimes some of these costs can be paid for at closing out of the money that the seller is receiving. A typical transaction may include a percentage of the sales price towards closing costs. For instance, you could be purchasing an $80,000 condo with an FHA loan which requires only 3.5% down ($2,800) and you might ask for 3% of the purchase price to be paid towards closing costs by the seller.
It’s a negotiable component of the contract and it’s not always going to be acceptable by the seller, but at least it’s worth a shot. Either way, you should probably have the amount you’re asking for tucked away just in case the seller doesn’t agree.