Being pre-approved for a mortgage is the first step in the process and finding the right house is the second. Once you have a binding purchase contract on a home, the out of pocket costs begin.
A. Earnest Money – Once all parties – the seller, the buyer and both agents have all signed off on the purchase contract, you will be expected to deposit earnest money. Earnest money is given as a sign of good faith of your intention to purchase the house. The funds are given to one of the real estate brokerages or the closing attorney to be held until closing. It is usually paid by certified funds not a personal check, cash or money order. The amount of the earnest money can vary but usually ranges from $1,000 – $5,000 depending on the price of the home. Make sure that you have a full discussion with your Realtor on how earnest money is handled and under what circumstances it can be refunded to you and under what circumstances the seller will be entitled to it.
B. Inspections – It is critical for a buyer to have a home inspection. It is through the inspection process that the buyer learns the condition of the home and determines if it is a good investment. The cost to inspect ranges from $300-450 for an average size home. (Usually under 3,000 square feet). Any additional inspections such as termite inspection, radon testing, etc. are separate costs. All payments are due at the time of the inspection and are payable to the professional.
C. Appraisal – The lender will order the appraisal but the buyer is responsible for paying at the time of the order. The cost ranges from $400-450 depending on the lender.
D. Miscellaneous Costs – The above costs are usually incurred in the standard purchase of a home. For the savvy investor, the costs are different. However, occasionally there are additional costs depending on the type of home purchased. Examples of other costs can be turning on utilities in a foreclosure or short sale, paying some of the costs with an HOA letter or a condo questionnaire. Your Realtor will explain these costs as you go through the process.
Make sure that you sit down with your Realtor and go over all of the upfront costs associated with the home purchase to make sure that you are financially ready to get started. Your lender will discuss the funds required to actually close on the loan such as the down payment, closing costs and the funds to set up your escrow accounts.