When buying a home, many people think they only need to have a down payment ready for closing, however, there are many other fees that may need to be paid throughout the process. So what are these hidden costs, when are they due and how can you prepare for them?
Earnest Money: Earnest money (EM) is a good-faith amount of money given to the seller (held by escrow) to show that the buyer really wants the house while the buyer goes through the home buying process. Generally, the escrow amount is about 3% of the purchase price.
Appraisal: Typically the appraisal is around $450 and is paid to the lender via a credit card as soon as you go under contract.
General inspections: We always recommend buyers do a home inspection on a property. These range from $450 – $900 based on the size of the property and usually these fees are paid at the inspection on the day of the inspection.
Supplemental inspections: We often recommend clients do supplemental inspections on top of the general inspection. Which supplemental inspections will be recommended vary on the type of property you’re purchasing.
- Sewer scope – Usually done on inspection day if there is access to the sewer these inspections typically cost $275. This will help determine if the lines are clear or if they will need to be cleaned or repaired.
- Oil tank – In older homes built before the mid-1960s often had underground oil tanks. These should be decommissioned prior to closing
The above is not an exhaustive list of supplemental inspections but is a list of the supplemental inspections our clients tend to have performed most often. Other vendors you may want to inspect the home may be roofers, painters, HVAC, flooring, lead based paint experts, asbestos removal companies, mold testers, etc. as well as other contractors to get a good idea of fixes that may be necessary. If you need help finding someone, we maintain a list of preferred service providers as a resource you can use.
Closing costs and prepaids: Usually the above items are the only fees you’ll pay before closing. However, at closing you’ll have to pay closing costs and prepaids on top of the down payment. Closing costs are typically 2% – 3% of the purchase price and include the appraisal mentioned above as well as Title fees, lender fees and more. Please ask your lender for an estimate of closing costs. In addition, you’ll need to pay prepaids if you’re getting a loan. Prepaids are things like pre-paying 6 – 12 months of your homeowner’s insurance at closing as well as several months of HOA fees. Your lender can give you an estimate of both prepaids and closing costs so you know how much money to budget for on top of your down payment, earnest money fees and inspection fees.
