Surprise, you need more cash!
Most buyers are aware that a down payment is required (most of the time) when you purchase a home. Typically you’ll be looking to save 3.5% of the purchase price for a FHA loan, or 20% for a conventional loan. Yet, there are other variations – 5%, 10% or 0%, but usually it’s either a 3.5% or 20% down payment.
But what about closing costs?
And here’s where the surprise comes in. Most buyers are aware that there will be closing costs involved. However, not many buyers have a good idea of how much. Let’s take a look at costs in closing costs in New Jersey.
As a general rule you can figure on 2% to 7% of the purchase price. That’s a wide range, so let’s look a little further.
First let’s let’s look at the costs if you purchase cash. Here are some of the services you’ll need to pay for.
Attorney fees Title Company Fees – Title Search, Title Insurance, Misc Services
Well and septic system inspection – if applicable
Flood Insurance – if applicable
You may need to prepay a certain number of monthly payments If there’s a homeowners association.
Also, if you’re purchasing in an active adult community, many have fees (with various names) which you’re require to pay the association when you close. We’ve seen that these fees can range from $300 to $3000 or more. Ask your Realtor before making an offer
Now let’s look at costs if you’ll be getting a mortgage. Additional costs will be incurred If you’ll be getting a mortgage. In addition to the costs when purchasing cash, here are some additional ones.
Bank fees / Origination fees Note – these fees vary according to the lender. Banks fees can be as low as $300, however, we’ve seen fees considerably higher! Don’t be afraid to ask your lender, and it may be worth you time to shop around.
Prepaid Interest – this is the interest due between the closing date and the first payment
Taxes will need to be prepaid into an escrow account
With conventional financing, if you’re putting less than 20% down, you’ll usually need to pay Private Mortgage Insurance. Typically you’ll pay the first months premium at closing
FHA Financing – there’s an Up-Front Mortgage Insurance Premium. Usually, it’s possible to roll into the mortgage
VA Financing requires the VA Funding Fee. However, this can usually be rolled into the mortgage.
These are the major expenses. However, there will be many small costs that will add up. Our suggestion is to speak with your attorney and your bank early and often to find out what their fees are. Don’t be afraid to shop around for attorneys and banks. You have the right to do that. And be wary of fees that are too low, because there may additional fees that will make the total costs higher.
When you’re ready to either buy or sell a home, contact us.