Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below.
Buying your first home is exciting, but it also comes with a bunch of hidden costs. Financial expert Dave Ramsey recently took to X to break down what first-time homebuyers need to know before they sign the dotted line, including how to handle home inspections and closing costs.
Ramsey got straight to the point in a clip from one of his “The Ramsey Show” episodes. “Yes, you need to get a home inspection,” he said. But he added that you don’t have to panic about every little thing the report shows. “No, you do not need to take it super seriously. If they say the front porch light is blinking on and off, that’s not a reason to walk away from the deal.”
Don’t Miss:
What you should be looking for are the big issues. “Mold, foundations, heating and air systems that are about to go kaput,” Ramsey said. Anything minor can usually be handled without breaking the bank.
Ramsey also went deep on all the expenses first-time buyers usually don’t see coming, starting with escrow. “They’ll typically collect about three to six months of the property tax amount and three to six months of a homeowner’s amount,” he said. These are known as pre-paids and they’re used to set up your escrow account, which covers taxes and insurance.
Another hidden cost? Points and origination fees. “One point equals 1% of the loan amount. It will lower your interest rate about one-eighth of a percent per point you pay and it’s not worth it,” Ramsey told the caller. “Don’t do it.” Instead, he recommends asking for a “par quote,” which means no points and no origination fees. It results in a slightly higher interest rate but saves you money upfront.
Trending: From Moxy Hotels to $12B in Real Estate — The Firm Behind NYC’s Trendiest Properties Is Letting Individual Investors In.
Even if you’re buying in a cookie-cutter subdivision, your lender will likely require a survey to confirm the house is actually on the lot. Ramsey said this usually costs $100 to $200.
He also strongly recommends buying owner’s title insurance. “I would never buy a piece of real estate without title insurance ever,” he said. The lender will require mortgage title insurance anyway, but for a small fee you can add on your own policy to protect yourself in case of title issues.
Last year, Ramsey also shared some general rules for responsible homebu ying. First, be debt-free before you buy. Second, keep an emergency fund with three to six months of expenses even after your down payment.
Third, “Never take out more than a 15-year fixed rate where the payment is more than a fourth of your take-home pay,” he said. “You can qualify for almost twice that much, but that doesn’t mean you need to be that stupid.”
See Also: This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, with minimum investments as low as $100.
Finally, aim for a 20% down payment. Doing so avoids private mortgage insurance. “All that is is foreclosure insurance that you buy for the mortgage company,” he told the caller. “It does nothing for you.”
Don’t be shocked when you see a long list of random charges at closing. Ramsey said you’ll probably see fees for document prep, closing, and a proration of annual property taxes, depending on what month you’re closing in.
“All this stuff is gobbledygook and it’s all lumped into what we call closing costs,” he said. “No, you can get in there and dig around and understand what each item is and you can select to not do some of the items in some cases.”
Read Next: From Chipotle to Red Bull, Top Brands Are Already Building With Modern Mill’s Tree-Free Wood Alternative — Here’s How You Can Invest Too
Image: Shutterstock
This article ‘You Need To Get A Home Inspection,’ Says Dave Ramsey, But Don’t Take It ‘Super Seriously’ originally appeared on Benzinga.com
link