Have you been thinking about purchasing a home? Have finances shied you away from trying before? There is no reason to sidestep this milestone any further because today we are talking about what it actually costs to buy your very own home.
1. Due Diligence Fee
This is the first chunk of money a buyer will put down to go under contract. This, like everything, is negotiable, but there are some basic expectations regarding what is an appropriate due diligence offer. For a home up to $200,000, $500 is standard in a buyer’s market; but, it can be $1,000 to $15,000 in a seller’s market. For properties that range in the $400 to 600k price range, the standard is $2,000 in a buyer’s market or can go up to $20,000 in a seller’s market. It’s important to know that you will get this money back after closing! But if you decide to walk before the due diligence deadline, you will lose it.
2. Inspections
The next thing buyers will have to pay money for are home inspections, and the average cost of a home inspection in the U.S. ranges from $300 to $500. However, prices depend on location, square footage, condition of the home, and services (like radon testing and mold inspection).
Inspections are not required during the buying process. However, we do not recommend going without them because a home can have thousands of dollars worth of repairs and damages, and buyers generally do not notice them until days, months, or even years after closing. With an inspection report, you will know any concerning issues beforehand - giving you more negotiating power to get a price reduction or have damages repaired before closing.
Nonetheless, the most important part about getting inspections done is that you will have peace of mind knowing your dream home is safe for friends and family and free of damages.
3. Earnest Money
In addition to inspections and the due diligence fee, buyers will need earnest money, also known as a ‘good faith deposit.’ This money is put down before closing on a house to show the seller that the buyer is serious about purchasing the home. Typically, this money, which tends to be about 3% of the purchase price, is deposited into an escrow account and managed by a third party. If the sale successfully closes, the earnest money is applied toward closing costs. On the other hand, if the deal falls through, the money may be returned to the buyer.
4. Closing Costs
The last bit of money buyers will need to pay is closing costs - these are expenses beyond the down payment, such as appraisal fees, attorney fees and escrow funds. These fees also depend on a variety of factors, such as paying with cash or a loan. Generally, you can estimate this to be 2% to 5% of the total purchase of the home. In other words, if the home is $300,000, closing costs would be anywhere from $6,000 to $15,000.
Below are some common expenses that are included in closing costs:
- Appraisal fee
- Title-related fee
- Escrow Fee
- Recording Fee
- Loan-related fees
- Attorney fees
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