Be Ready for These Expenses When You Buy a House...
You may know about down payment plans and closing costs, but today I’m sharing the three main costs that buyers need to pay for out of their own pockets before closing on a home.
The fun part of home buying, of course, is looking at all the different options, comparing notes, and feeling a rush of excitement when you finally settle on ‘the one.’ It’s at that point, however, that buyers often ask, “Okay, how do we go about making the offer? How does it work?”
It’s my job to introduce—ideally before that point—the concept of buyer expenses. The three main expenses that buyers pay out of pocket before closing are the earnest money, inspection, and appraisal.
The earnest money is usually 1% of whatever the purchase price is, though I always round down; if the home costs $230,000, the earnest money deposit will be $2,000. This deposit goes into a specially designated and regulated account, where it will remain untouched until the closing day when it comes back to you as a credit.
You’ll get this deposit back if: 1) you end up closing on the home, 2) the results of the home inspection are dissatisfactory and you decide then not to buy, or 3) you apply for the loan but for whatever reason cannot secure it (e.g., you suddenly lose your job).
Inspections must be paid for at the time of service.
However, if you simply wake up one day and decide you no longer like the house for which you put down an earnest money deposit or some other house catches your attention and you decide to pursue it, then the seller will contest that the earnest deposit is theirs to keep.
Inspections must be paid for at the time of service, which is why it’s an out-of-pocket cost. The same is true for the appraisal service. Your lender will order an appraisal and it’s through them that you’ll pay for that service.
Here’s an important quick tip though: We recommend not paying the fee for an appraisal until after the inspection is resolved. Why’s that? Well, if you discover through an inspection that the house is a mess, you can still back out and expect to get your earnest money deposit returned. However, if you paid the appraisal fee before the inspection took place, you will not get that amount returned to you.
If you have any other questions about buyer expenses or how the purchase process works, please reach out to me via phone or email. I’m always here to help.