Calculating the cost of buying a home.

Learn about the hidden or unexpected costs of buying a home in San Diego.

Let’s face it, no one enjoys surprises when it comes to spending money. After all, purchasing a home is an expensive proposition. It takes time to save for a down payment, shopping for a home, and the stress of placing an offer. Many buyers fear if they will have enough money, particularly if there are some unknowns. Yet other buyers, having not been through the home buying process make the assumption that purchasing a home involves a purchase price and a down payment…and that’s it. However, the question of how much does it really cost to buy a home often goes unanswered, or vaguely answered at best.

This article will attempt to break down some of the costs based on actual San Diego transactions. But first, it helps to understand the purchasing process. We will go through the process and costs together.

Home Buying Cost Breakdown

GET PRE-APPROVED OR PRE-QUALIFIED FIRST: Do you know how much you can really afford? Do you know the loan amount your bank will lend you? Do you know the interest rate your lender will charge? Do you know the type of loan best suites your needs? If you can’t answer those questions, then you have not been pre-approved or pre-qualified for a loan.

Prior to being pre-approved or pre-qualified, many buyers will start looking at homes. They often will fall in love with a home only to later learn that they can not afford it, or they would not be able to obtain financing. To start your home buying process out right, contact a lender. Click here to view our list of preferred lenders.

PURCHASE PRICE: The home’s listing price is generally set by the seller with assistance from their listing agent. Often, the listing agent will review other sold and pending properties, as well as other active listings, in the neighborhood that reflect some similarities of the home they wish to sell. However, the offering price is the price you initially present on your purchase offer. This price should be well thought out between you and your agent. [Note: it is important to use a buyer’s agent–an agent that works for you and keeps your interest at heart. The seller typically pays the buyers agent’s commission.] The purchase price is the final price (before other costs) that you will pay for the home, after all negotiations. The ancillary cost to buy a home is a direct function of the purchase price in most cases.

DOWN PAYMENT: Prior to purchasing a home, your lender will have matched you with the best loan program that meets your financial goals. Each loan program, whether the loan is conventional loan, FHA, VA, or another program, will have its own down payment requirements. Conventional loans require a minimum of 20% down payment in order to avoid private mortgage insurance. However, FHA loans require mortgage insurance premiums just about all the time and throughout the loan. (You may request the insurance be removed after 11 years, depending on certain conidiations.)

Other than the minimum down payment required by the lender, you can add to that. Therefore, the down payment can be between 3% to 20% or more.

EARNEST MONEY DEPOSIT: At the time your offer is accepted, you will need to wire an earnest money deposit or EMD. This is your good-faith deposit, or your skin-in-the-game deposit. This deposit, while refundable should you cancel the contract prior to removing all of your contingencies, is generally applied to your down payment or closing costs. The EMD typically ranges from 1% to 3%. In most cases, here in California, the EMD is never more than 3% as that is the maximum amount a seller can keep in the event you do not cancel your contract properly.

INSPECITONS: A prudent agent will recommend you hire a licensed home inspector. The home inspectors will conduct a thorough inspection of the home you wish to purchase, and prepare a written report with photographs of the noticed deficiencies. The inspector will only not what he can visually see, thus it may be wise to hire specialized inspectors for various aspects of the home, such as plumbing, roofing, electrical, or a general contractor for structural components. Home inspectors often charge based on the square footage of the home. The buyer is responsible for the cost of all inspections, which is generally paid at the time the inspections takes place, You should plan on spending about $400 to $600 for the home inspection alone. Condos may be cheaper, say $300-$400.

CLOSING COSTS: This is where more buyers are surprised. The closing costs are calculated between the lender and the escrow company. They include costs such as appraisal fees, escrow fees, lender fees, processing fees, title report fees, notary fees, filing and recording fees, wiring fees, and even postage or courier fees. Be sure to ask what a fee is for if you don’t recognize it or it seems excessive. Your closing costs will largely depend on the type of loan or financing, and if there are any credits given. (A seller or buyer’s agent can give credits toward the buyer’s closing costs. The buyer’s agents credits comes from their personal commission.) Expect your closing costs to run about 1.5% to 3.0% of your purchase price. We have seen it closer to 2.0% to 2.5% in most cases.

Example Out of Pocket Closing Costs

TOTAL OUT OF POCKET COSTS: Considering the average purchase price of a home in San Diego, California at $675,000, and based on a conventional loan, the following table highlights the typical purchase costs:

Earnest Money Deposit1% to 3%, Say 2%$13,500
Down Payment*3% to 20%, Say 10%$54,000
Inspections $400 to $600, San $500$500
Closing Costs1.5% to 3.0%, Say 2.5%$16,875
TOTAL OUT OF POCKET COSTS12.6% (Varies due to down payment)$84,875
* NOTE: The 10% down payment is $67,500, but since the EMD is part of the down payment, the balance of the down payment is $54,000

While these numbers may not be absolutes, and each situation differs, it does give you an insight as to the real costs of purchasing a home here in San Diego, California.

TIPS ON LOWERING YOUR OUT OF POCKET COSTS; Let’s face it, there are only a few trees money grows on, and we are still searching for them. Until then, we all look for opportunities to lower our costs and save money. After we just learned that the cost to buy a home isn’t cheap. Here are some suggestions:

  1. SHOP LENDERS: While many may offer similar interest rates, some will charge less in lender origination fees, or perhaps reduce their rate upon request.
  2. ASK FOR A BETTER RATE/FEE: You may be surprised what you will receive if you just “ask”. Some people will give you a better deal if asked, or if they believe it will help them retain your business.
  3. ASK YOUR AGENT FOR A CREDIT: Again, buyer’s agents can give a portion of their commission towards your closing costs. They cannot, however, give towards your down payment. Some agents are willing to “spread the love” and give you a little to help out. After all, they want your referrals.
  4. SHOP INSPECTORS: You could potentially save a few hundred by making a call or two.
  5. ASK FOR CREDITS FROM SELLER INSTEAD OF REPAIRS: After you complete your home inspection, there may be some repairs needed. Often, you can ask for a credit for those repairs, especially ones that you can do yourself.

Ask your HallDoran Realtor about how you can save money when buying a home. Your agent will also explain the cost to buy a home at your first meeting. We are in the business of serving you…the buyer. Find your agent here.