Frisco TX First Time Home Buyers – How much funds are needed to buy a house in Frisco TX (Part 4)

by Mike Yeo on September 25, 2010

This Frisco TX First Time Home Buyer series is a 10-part series to guide first time home buyers in the greater Frisco TX areas. It discusses topics from your First Steps towards Homeownership, understanding the difference between Pre-Qualification and Pre-Approval loan process and how to strategize a better home buying negotiation. The article prior to this explains what makes up a house payment in Frisco TX. Even buyers who are relocating to the greater Frisco TX area, who may not be first time home buyers can benefit from the previous article. Home mortgage payments as far as property tax and hazard insurance premium expectations are quite different from the rest of the country. Now, you know how much is your monthly commitment, be ready to understand:

Frisco TX Home Buyer Series: How much funds are needed to buy a house in Frisco TX

There are some funds that are needed which are pretty self-explanatory. Not much elaboration will be needed. They are:

Down Payment – If you want to purchase a $100,000 home and you want to put up a 5% down payment, you will need $5,000 as the down payment.

Closing Costs – Closing costs are fees associated with obtaining the mortgage. When dealing with a lender, different lenders operate differently. Some lenders require you to pay an upfront application fee and a credit report fee at the time you submit a loan application. To find out the actual charges and upfront fees involved, speak to your preferred lender directly.

In Texas, as the Buyer, you can ask for Seller to help with your closing costs. This is where some negotiations with the Seller comes into play. In most cases, Sellers can contribute up to a 3% of sales price towards closing costs in a conventional loan and up to 6% in an FHA loan. This closing costs will help with needing less funds to bring to the closing table. Depending on how much you receive from the Seller and how much your closing costs are, you may or may not need additional funds.

Your real estate agent and lender will be able to give you more specifics on your situation. Every transaction will be different.

There are additional funds required to purchase your first home. They are:

Earnest Money – Earnest money is a deposit of good faith that you are serious in purchasing the property. In Texas, there must be monetary value as a consideration of good faith. It may be as little as $1 – if that is what is agreed between a Buyer and a Seller. There is not a set amount. However, consideration of good faith has been typically $500 on lower end properties and $1,000 for every $100,000 purchase price. Again note that these are simply typical numbers for you to prepare. The amount is negotiated between buyer and seller.

If your offer is accepted, the earnest money is deposited and cashed by the title company. Most buyers just assumed that the earnest money check is kept at the title company. Not this case at all. Should the transaction do not succeed and depending on the situation, if the earnest money is to be refunded, the title company will send you a check (from them).

Earnest money is credited towards the purchase.

Option Fee – Upon signing and executing on the home purchase, it is typical to negotiate an option period. An option period is also known as a Termination period. This time frame, as negotiated and agreed between both parties give the buyers an unrestricted right to cancel the purchase for any reason – or no reason at all. At the same time, the Buyer normally gives an agreed amount of money to the Seller for taking the property off the market during this time.

Option Fee can be as low as $1 or as high as any amount. What is typical for an option fee could be in the $50 – $200 range. Remember, the period (days) and amount are negotiations between the parties to the contract.

The option fee may be credited (or not) towards the purchase of the home – as per agreed between parties.

Inspection Fee – During the option period (stated above), it is a good idea to hire a property inspector to inspect the house. A home inspection is a visual assessment of the property condition at time of inspection. The objective of a home inspection is to try to identify existing faults and identify potential problems. Stay tuned for the Home Inspection segment for further details.

A general home inspection in the Frisco TX area could cost from $200 and up. It depends on the age of the property and the size of the property. Every home inspector charges a different fee. However, do not just use the lowest priced inspector. Your real estate agent should have several good recommendations for you. You may also order a termite inspection which is different from the general home inspection. A termite inspection can cost around $75.

All negotiations and responsibilities of repairs should be negotiated before the option period expires. If more time is needed, an extension of the option period should be discussed. If the negotiations are not completed before the option period expires, it is assumed that the Buyers purchase the property in its “as-is” condition.

Appraisal Report – The appraisal report may be considered as a part of the closing cost. The appraisal report must be ordered when financing is in place. Lenders want to assure themselves that the property appraises for at least the loan amount. The appraisal fee usually cost $350 – $425 depending on the type of financing.

Pre-paid Items – Pre-paid items make up the closing costs. Depending on how much was negotiated with the Seller and lender’s requirements, some buyers must come up with their own pre-paid funds at closing. These pre-paid items may include 1-year homeowner’s hazard insurance premium for the first year, reserves for property taxes and insurance as required by lender and pre-paid mortgage interest from the day of closing until the end of the month. It is advisable to close closer towards the end of the month to minimize pre-paid interests needed at closing or at the beginning of the month (first 7 days) to receive a lender credit. If you do not have 20% down payment on your loan, you are also required to pay an upfront mortgage insurance premium. These could be 1.5% of your loan amount.

In summary, here is a snapshot of the funds you require to purchase your first time home in Frisco TX:

Required Funds Estimated Amount
Down Payment Depending on loan amount
Earnest Money As negotiated between parties
(Typically $500 – $2,000)
Option Fee As negotiated between parties
(Typically $50-$200)
Inspection Fee (+ Termite inspection) Paid directly to Appraiser
(Typically $200 – $500)
Funds Associated with Financing:
Credit Report Fee Paid to Lender
(May start at $10 – ???)
Application Fee Paid to Lender
(Typically start at $75 – ???)
Appraisal Report Paid to Appraiser via Lender
($350 – $450)
Home Insurance Paid to your Insurance broker via Title Company
(Depends on your Insurance premium)
Reserves for property taxes and insurance Depends on lender’s requirements
Pre-paid Interests Depends on terms of your loan and closing date.
Upfront Mortgage Insurance premium Depending on your loan

Stay tuned for the next part of this Frisco TX first time home buyer series: Setting yourself for real estate success with tools you need.

Articles in the Frisco Texas First Time Home Buyer series:

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Frisco TX First Time Home Buyers – How much funds are needed to buy a house in Frisco TX (Part 4).

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