The most important consideration is, “what is it going to cost me?’ In searching for the answer to this question we must ask, what is it going to cost, what is the purchase price? This is the initial price agreed upon between the buyer and the seller but only after negotiation and agreement in writing.
When buying real estate, there are typically two prices involved: the asking (or list) price and the agreement (or purchase) price. This is the initial price set by the seller when listing the property for sale. The price can be set at will without an understanding of the real estate market or by using a competent professional. A professional broker can do substantially more research faster than a homeowner. In addition, the asking price is often determined based on factors such as the property’s market value at the time and using comparable sales in the area. The seller’s financial needs are considered however, buyers really don’t care what the seller’s goals might be. The advice of real estate agents or appraisers will ultimately determine the value. The asking price serves as a starting point for negotiations between the seller and potential buyers.
Agreement Price (Purchase Price): The agreement price, also known as the purchase price or sale price, is the final price agreed upon between the buyer and the seller in the purchase agreement (or contract of sale). This price may be the same as the asking price if the buyer agrees to pay the full amount or if there are multiple offers on the property. However, it’s common for the agreement price to differ from the asking price due to negotiations between the parties. Factors that can influence the agreement price include the condition of the property, market conditions, appraisal results, financing contingencies, and any repairs or improvements needed.
In summary, the asking price is the initial price set by the seller, while the agreement price is the final price agreed upon in the purchase agreement between the buyer and the seller. The agreement price may be higher or lower than the asking price depending on negotiations and various factors affecting the transaction.
Down Payment: The down payment is the upfront payment made by the buyer toward the purchase price. It’s typically a percentage of the total purchase price, with common percentages ranging from 3% to 20% or more.
Several programs offer down payment assistance (DPA) to help homebuyers cover the upfront costs of purchasing a home. The availability and eligibility criteria for these programs can vary depending on factors such as location, income level, and property type. Here are some of the best-known programs for down payment assistance:
Federal Housing Administration (FHA) Loans: FHA loans are backed by the Federal Housing Administration and often require a lower down payment compared to conventional loans. Borrowers may be eligible for down payment assistance through various state and local government programs that work in conjunction with FHA loans.
USDA Rural Development Loans: The USDA offers loans with no down payment required for eligible properties in designated rural areas. Some state and local housing agencies also provide down payment assistance programs for USDA loans.
VA Loans: VA loans are available to eligible veterans, active-duty service members, and certain spouses with no down payment required. While the VA itself does not offer down payment assistance programs, some state and local organizations provide assistance to veterans and military families.
Good Neighbor Next Door Program: This program, administered by the U.S. Department of Housing and Urban Development (HUD), offers a 50% discount on the list price of eligible homes for law enforcement officers, teachers, firefighters, and emergency medical technicians. Participants are required to live in the home as their primary residence for a specified period.
State Housing Finance Agencies (HFAs): Many state HFAs offer down payment assistance programs to help low- to moderate-income homebuyers. These programs may provide grants, loans, or forgivable loans to cover all or part of the down payment and closing costs. Examples include the California Housing Finance Agency (CalHFA) and the Texas State Affordable Housing Corporation (TSAHC).
Local Government Programs: Some city and county governments offer down payment assistance programs to promote homeownership and community development. These programs may be funded through local tax revenues or federal grants and can vary widely in terms of eligibility requirements and benefits.
Nonprofit Organizations: Various nonprofit organizations and community development corporations (CDCs) offer down payment assistance programs aimed at low-income individuals and families. These programs may provide grants, loans, or other forms of assistance to help cover down payment and closing costs.
Before applying for down payment assistance, it’s essential to research the eligibility requirements, application process, and available resources in your area. Working with a knowledgeable real estate agent or mortgage lender can also help you navigate the options and find the best program for your needs.
Mortgage Loan: If you’re financing the purchase with a mortgage loan, you’ll need to consider the total amount borrowed, including the principal amount and any applicable interest over the loan term.
Interest Rate: The interest rate on your mortgage loan affects the total cost of the home. A higher interest rate means higher monthly payments and potentially more interest paid over the life of the loan.
Loan Term: The length of the loan term (e.g., 15 years, 30 years) affects the total amount paid over time. Longer loan terms typically result in lower monthly payments but may incur more interest over the life of the loan.
Closing Costs: Closing costs include various fees and expenses associated with finalizing the home purchase, such as loan origination fees, appraisal fees, title insurance, escrow fees, and property taxes. These costs typically range from 2% to 5% of the purchase price.
Property Taxes and Insurance: You’ll need to consider ongoing expenses such as property taxes and homeowners’ insurance, which can vary depending on the location and value of the property.
Homeowners Association (HOA) Fees: If the property is part of a homeowner’s association, you’ll need to factor in monthly or annual HOA fees for maintenance of common areas and amenities.
To calculate the total cost of the home, add up the purchase price, down payment, mortgage loan amount (including interest over the loan term), closing costs, property taxes, homeowners insurance, and any applicable HOA fees. Keep in mind that there may be other expenses or factors to consider based on your specific situation and the terms of the home purchase. It’s essential to work with a real estate agent, lender, or financial advisor to get a comprehensive understanding of the total cost involved in buying a home.