When purchasing a home, you know the sales price you have negotiated, but when you make it to the closing table your might be surprised at some of the other expenses involved in the process. Here is a detail explanation of all of the out of pocket expenses you might encounter when you buy a house.
Earnest Money Expense
The first out of pocket expense that you’ll have is the earnest money. The earnest money shows the seller that you are committed to the purchase & aren’t out submitting offers on other properties. You give the earnest money check to your Broker or Title Company and it’s kept in escrow until the purchase is finalized. This money will go towards your closing cost or down payment at closing. There are instances throughout the buying process, where this is refundable to the buyer should the deal fall through.
The next out of pocket expense are inspection fees. There are many types of inspections you may wish to have done on your home which might include:
- Basic home inspection to determine the condition of the home. Usually runs $300-400, depending on the size & age of the home.
- Radon Test. This determines if your home has unsafe levels of Radon gas. Usually about $175.
- Sewer Line Scope. To see if there are any issues with the current sewer line. Usually about $125- 200.
- Lead Based Paint Assessment. This determines if the home contains lead paint & applies to anything built prior to 1978. This usually runs about $300.
- Meth Lab Test. This will check to see if there has ever been methamphetamine in the home. This starts around $600 & can go to about $1200.
- Mold Test to see if your home contains dangerous mold. This usually runs about $300. There’s also Well & Septic testing if the home has them.
These fees are to be paid in full at the time of service.
Down Payment Expense
The next expense is your down payment. This is a percentage of the sales price of the home, which you pay at closing. VA loans do not require any down payment. There’s also first-time buyer programs that provide down payment assistance for buyers that qualify. The most common loan for first timers is FHA. This requires 3.5% down payment due at closing. Conventional loans start with a minimum of 5% down payment and go up from there.
The last out of pocket expense is closing costs. These are fees paid at the closing of a Real Estate transaction. This pays for things like points, appraisal and title company fees, taxes, pre-paids and many other important items. Luckily, you will know what to expect ahead of time, because lenders will provide a cost analysis worksheet with estimated fees.