People may not want to talk about money and it might be uncomfortable, but you really can’t buy a house without money. We have to talk about it. And it’s okay; you need to know what’s involved when buying a house. While every single real estate transaction is different there are some commonalities to most deals. There’s the earnest money deposit, down payment and closing costs. But there are also a lot of hidden fees and expenses that you may not realize. I want to answer some of the most common questions about finances when you’re buying a home.
#1. What is the difference between an earnest money deposit and a down payment?
An earnest money deposit is the very first money you put up to hold the sale on the house. It’s as if you are saying, “I really want to buy this house and I’m willing to put down $5000 to hold the sale.” When you decide to purchase a house, you and your agent agree on the right amount of earnest money deposit. The amount is listed in the offer and the buyer typically writes a check, cashier’s check, or money order to the escrow company or real estate brokerage, however, this is not deposited until the seller agrees to the offer. Once there is mutual acceptance, the earnest money is deposited into an escrow account until closing.
A down payment is how much you are putting down on the purchase price of the home for the lender. Unless you are paying for the house in all-cash, you’ll put a percentage of the total price down towards the home so that the lender can finance the remainder your earnest money deposit gets added to the down payment as a credit during closing.
#2. Inspection costs.
This is another out-of-pocket expense that you will need before the property closes. You’ll need to pay the home inspector directly for a home inspection report. This is a crucial part of the home buying process. It gives you a chance to learn as much about the home as you can. It can also help you plan for the future by preparing now for things that might need to be replaced. The report can also help you decide whether or not to ask the seller for any repairs or financial refunds so that you can fix the issue. This fee is anywhere from $300-$800 depending on where you are in the country and what type of inspection.
Read More: How do I know I’m ready to buy a house?
#3. Closing costs.
These fees typically get built into the final closing on the property. Closing costs will also include your final down payment, any appraisal fees, courier fees, lender fees, title insurance premiums, escrow fees, and any other little details to the costs involved of actually purchasing the property and the real estate process. These all get lumped into one large “closing costs” fees. You will get a detailed statement outlining all of these fees, what they are for, and how much you will be paying. Your lender should also give you a good faith estimate so you have an idea before closing how much you’ll need to bring to the table. Depending on the type of loan you choose, many of these fees can actually get built into the loan amount, allowing you to bring practically nothing to the closing table. But, this is something that you need to discuss between you and your lender.
#4. Real estate commissions.
Realtor® commissions actually get paid by the seller. When a homeowner lists their property they agreed to pay a percentage of the sale price to both the listing agent and the agent that brought the buyer. If that’s the same agent, the listing agent receives the full commission. As a buyer, it is not your responsibility to pay your agent, because that fee was built into the listing when the homeowner created the contract with their listing agent.
These are the most common fees to buying a property. There may be other issues and odd transactions depending on the type of property. You might need an additional inspection on major areas of the home such as the roof, foundation, plumbing, septic, or electrical. You may need boundary surveys if you are buying property or if the boundary of the property is not clear in the deed. While these are unusual, they are not uncommon.
If you have questions about all the costs involved in buying a home feel free to contact us at any time. We’d love to talk to you about buying a home anywhere in Northern Virginia, DC, or the Maryland area. We have agents and offices in several cities throughout the metro area.