The Richmond Real Estate Market is on fire! The interest rates are still very low, which means a lot of first time home buyers are thinking about buying a home. For the first time home buyer, the question is,"how much money do I need to have to buy a home?" That's a great question, and it all depends. When our parents were purchasing a home, they probably had to have 20% of the purchase price of the home to put down as a deposit. This is no longer the case, but a lot of people still think you have to have 20% down. There are several different loan products out there. There are VHDA loans that are 0% down payment. You have to qualify with your credit, and there is an income requirement. If you make too much money, you may not qualify. There are FHA loans that require a 3.5% down payment. There are some grant programs available to assist with the down payment. These are government grants for first time home buyer loans, that are free money toward your down payment. Again, you would need to qualify with credit and income. Then there is a standard conventional loan which has a 5% minimum down payment, at most lending companies. There are also VA loans and USDA loans that have 0% down payment. VA loans are for active military or veterans. USDA loans are for rural areas, and they also have a 0% down payment. Your lender should have a USDA map which will tell you if a property qualifies. There are 203K loans which are renovation loans, but you will want to talk to a lender about renovation loans. They normally have a specialist who works specifically in that field. These are all the possibilities of down payment for just the loan that you may incur.
The Earnest Money Deposit is another out of pocket expense that you will incur. The standard Earnest Money Deposit is 1% of the purchase price of the home, or whatever is written into the contract and agreed to, by both parties. In our area, about $1,000 Earnest Money Deposit is normally sufficient for homes under $300,000. The Earnest Money Deposit is a deposit to show sincere interest in purchasing the home. That check needs to be given us within 5 days of the contract ratification. The funds are deposited into an escrow account at the brokerage, title company, or closing attorney. The funds are applied to your mortgage balance at closing. You never lose the money, unless you breach the contract, then the deposit would be awarded to the seller for the inconvenience of having their home off of the market.
Another out of pocket expense for a first time home buyer, or any buyer for that matter, would be the home inspection. An average home inspection will run from $350-$450+ depending on the size, location, and age of the home. I always recommend getting a home inspection, even on new construction. There could be workmanship issues, and even if there is a warranty on new construction, you want to discover any issues before moving into your home. The last thing you want is to move in, and have contractors in your houses fixing things while you are trying to get settled in your new home. A radon inspection is another inspection that you can request. There is an additional charge, and it will run you around $150-$200 per box. If there is an addition, or part slab, part crawl space, you will probably have to get two boxes. They will normally but you a break on a second box. Structural engineer inspection could potentially be another out of pocket expense. The home inspectors know a little about a lot. They may defer to an expert to inspect it to make sure there is not a structural issue. This can run about $250. If heavy amounts of mold are found during your home inspection, you may want to get a mold test. there are two different types of tests. Strip tests, which run a little under $100. They take a piece of tape and test the mold where they found it. Then there is an air test, which is pretty pricey and can cost up to $500. If you live in the city of Richmond and have large trees on the sidewalk in front of your prospective home, you may want to get a plumbing scope test. They run a camera through the pipes to make sure there are no root intrusions or blockages. This can cost a few hundred dollars as well. If you are out in the country, the standard contract in Virginia will require the seller to test well water for botrytus, but that's it. If you want your well water tested for lead or any other elements, you will have to schedule that inspection during the 10 day inspection period. Well, inspections vary in price depending on what you would like to test. The seller is required to do a septic purge and inspection before closing on a home. Normally the only inspection expense you will have will be the home inspection ($350--$450), and the Radon test if you decide to add it on. Radon is the second leading cause of lung cancer in the United States. I highly recommend getting a Radon test, but it's up to you.
Once your inspection repairs have been negotiated, your lender will order the appraisal. The appraisal is something you will have to pay out of pocket and will cost you around $450-$500. If you are using a loan, the appraisal is required to make sure you are not overpaying for the home. The bank wants to ensure their investment. If you are purchasing a home that has recently been flipped, the lender may require a second appraisal which you would have to pay for to ensure the home is truly worth the contract price. If you are paying cash, you would not have to have an appraisal. The appraisal is another safeguard to protect the buyer, and the lender, from purchasing a home that is not worth the contract price.
Last, but not least, closing costs may be another expense that you may have to pay. Inventory of homes is currently very low, which means supply is low and demand is high. The days of assuming that closing costs will be paid for by the seller are over. I'm definitely not saying that you will have to pay closing costs, but I want you to be aware that it's a possibility. The market is very competitive right now. When a decent home comes on the market, there are normally competing offers. To make your offer stand out in the crown, you may want to consider paying the closing costs to sweeten the deal. If you don't have money to bring to the table, you do have some options. You can see if the lender is willing to help with some of the closing costs, but this could increase your rate. The other option is to increase your offer price and ask for closing costs to be financed into your loan.
If you are a first time home buyer, your main takeaways from this blog should be to find out what type of loan works for you. Then you will know if you have to bring any money for the deposit to closing. At a minimum, you need to budget for the Earnest Money Deposit which is normally $1,000 for a first time home buyer. The home inspections which is around $350-$450. The appraisal which is between $450-$500. These are the main non-negotiable costs. If you are doing a no money down loan for a first time home buyer, you would need around $1,800.
The point of this blog isn't to freak you out with all of the possible out of pocket expenses, but more to prepare you for worst case scenarios. The majority of transactions aren't going to have additional inspections, but you need to be aware of the possibilities. I hope this article was helpful in some way to a first time home buyer, or anyone that reads it. If you have any questions you can reach me at 804-617-3397 or firstname.lastname@example.org
Licensed Realtor in the State of Virginia