Unlock Your Dream Home: Essential Financial Steps Before Buying in Reno, Nevada
Financial Steps Before the Sale Starts
For many people, buying a first home is a time of many different emotions. Exhilaration, pride, and anxiety are just some of the feelings that the soon-to-be homeowner may have as they take on this major life-changing event.
For new buyers, there is often one other emotion they may feel if their real estate agent has not prepared them ahead of time – sticker shock. Besides a mortgage, down payment and commissions, there are many other costs that are required as well as unexpected costs that may arise.
Before the sale process starts, your client must take the following two financial steps.
Deposit Earnest Money - This good faith deposit is done when the purchase and sale is finalized. It shows that the buyer is serious about purchasing the home. This is usually 1-3% of the sale price.
Apply for a Mortgage – Although some people can finance a home purchase with cash, most buyers need to apply for a mortgage. To do so, they need to also fund a down payment. The standard is normally 20% although if mortgage lenders approve, it can be less than that amount.
Closing Costs to Understand
Each type of service can vary depending on where the property is located. In addition to the down payment, there are various closing cost a client must pay to secure a loan. The total of these costs is normally 3-6% of the overall loan amount. Prices for each type of service can vary depending on where the property is located.
Loan Originator Fee – The mortgage lender charges this fee to cover the cost of processing, underwriting, and executing the loan. This is typically 1% of the overall mortgage.
Private Mortgage Insurance (PMI) - This additional insurance is required if the mortgage down payment is less than 20%. It is added as a premium to the client’s monthly mortgage payment.
Mortgage Points – This is prepaid interest that the client pays at the time of closing allowing them to get a lower interest rate as well as lower monthly payments. A mortgage point is equal to one percent of the total loan amount.
Escrow Account – There are two parts to escrow. First, an escrow account is set up by the mortgage lender with a neutral third party who then holds the earnest money and down payment until the final sale
Taxes – Most buyers are aware that they need to pay property taxes but may not know of one other expected expense, school taxes, which goes toward the cost of expenses for a community’s public schools. Not all states have a separate school tax; in some cases, it is levied from the property tax.
Homeowner’s Insurance – In addition to standard home insurance, your client may also need to purchase additional coverage, such as flood insurance.
Home Appraisal – A home appraisal is required by Mortgage lenders to assess the value of a home.
Title Search and Title Insurance – A title search is required to ensure there are no claims or liens on a property. A professional examiner will review all public records, including mortgage deeds, tax liens, land records and other sources to verify that there are no outstanding liens that would impede a sale.
There are other unexpected costs that you should prepare the potential homebuyer about ahead of time.
Document Preparation Fees – The client’s mortgage lender and/or real estate attorney may charge an extra fee to prepare the many forms required for a closing.
HOA Fees – One unexpected expense many people are unaware of is a Homeowner Association (HOA) fee. These fees, assessed by a neighborhood’s board of directors or council, pay for maintenance and upkeep throughout the neighborhood. These fees may range from as low as several hundred dollars to a year to several thousand per month, depending on where the client lives.
Home Inspections – Buyers have the flexibility to these inspections if they wish. In doing so, they can discover potential problems and assess the risk of going forth with a purchase.
Home Warranty – This is a service contract that limits out-of-pocket expenses for repairs or replacements in the home. It generally is for one year.
Moving Costs – Unless the homebuyer is going to move themselves, they will need to hire a company to do that for them. If they are not moving directly into the home, they may have to pay for temporary living arrangements, dining expenses and storage for their belongings.