TIP 4 - KNOW YOUR COSTS OF BUYING A HOME
This series of essential tips for Arizona home buyers are designed to help you through the home buying process – a roadmap to follow while buying a home for sale in Arizona to ensure a smooth transaction – and, most importantly, a rewarding home ownership experience.
KNOW ALL THE COSTS OF OWNING A HOME!
You already see the value of owning your home as a place to raise a family, gather with family and friends to make memories for a lifetime, and an asset that grows in value to be a major part of your wealth. This financial asset has acquisition costs and recurring costs outlined here.
- Earnest money - demonstrates to the seller you are serious and want to show your ability and readiness to purchase their home at the right price. $1000 is common for homes up to $350,000. For homes priced higher, the seller would expect $2500 - $5000 in earnest money. Your earnest money, subject to forfeiture during escrow, is held in escrow and applied to your down payment at close of escrow.
- Down Payment - The Arizona PQF discussed in TIP 2 has a box telling the listing agent and the seller the lender has verified the buyer has sufficient funds to close escrow. This is very important to the seller. They won't enter into a purchase contract and take their home off the market unless they are convinced you are creditworthy and have the money for the balance of your down payment required by the lender.
- Other costs: escrow fees, lender title policy, loan fees, HOA transfer, and capital reserve fees, proration to reimburse the seller for advance payments beyond the close of escrow, etc. For homes selling in our average price range of $200,000 - $300,000, I use a rule of thumb buyer closing costs are 3.5% of the sales price plus FHA buyer down payment of 3.5%, assuming the buyer finances their FHA Mortgage Insurance Premium. Cost of the Home Inspection $250-$350 is paid outside of escrow. New customers may be required to make utility company deposits. Contact Sam to request detailed estimated closing costs.
- Your Monthly Payment is made up of PITI + MIP. Your monthly loan payment is paid directly to your loan servicer after close of escrow and includes:
- 1.) P for Principal (part of your payment that repays principal so your entire loan is paid off at the end of the loan period)
- 2.) I is for Interest paid on the declining balance of the loan,
- 3.) T is for Taxes equal to 1/12th of the annual property taxes that will likely increase annually and so will your payment,
- 4.) I is for Insurance - homeowner's hazard insurance for fire, lightning, water leak (not rising flood water) or some other event causing damage to the home and
- 5.) MIP (PMI) is for the mortgage insurance protection to ensure the lender holding your loan against your loan default, and required if your initial down payment was less than 20% of the purchase price. An FHA loan requires MIP will be collected for the life of the loan until the loan is repaid. PMI for a conventional loan ends with your remaining principal drops to 78% of the loan amount.
- HOA - if the home you own is in a subdivision with a Home Owners Association, HOA dues are paid directly to the property management company by you. This may be due monthly, quarterly, semiannually or annually. Even if you are not required to pay monthly HOA fees, it is best to budget them monthly and accumulate the money required to pay the HOA fees when due.
STAYED TUNED - Anything in big doses is hard to digest. Instead of blasting you with the complete series of home buyer tips, you are going to receive my recommendations in small bites…
So this is the fourth installment. If you are buying a home now and want all tips at once, email me and it will be sent on its way to you. Otherwise, my blog will eventually include all home buyer essential tips. Return to Buyer Tip 3 or continue on to Buyer Tip 5.
Arizona Associate Broker, CRS, GRI, e-PRO
Berkshire Hathaway HomeServices | Arizona Properties
Contact Sam to discuss your Arizona home purchase plans and schedule an appointment to see how he can help make your plans become a reality.