This is probably one of the most common questions we get as or get officers, how much cash do you need to buy a house. Now, I’m not necessarily talking about the down payment. Downpayments can come from a lot of different places including being rolled into the purchase of the house itself, so that the buyer doesn’t have to come up with 10 grand right off the bat. But I’m not necessarily talking about downpayments here. What I’m talking about is the actual cash out-of-pocket you will need in order to buy a house. What set the down payment portion aside for now and talk about the out-of-pocket costs it takes to buying a house.
When you make an offer on a house you will need to put down earnest money. This is a good faith gesture showing that you want the house and are willing to put money down so that nobody else can buy the house in the meantime. This is typically 1% to 3% of the purchase price of the house. So, if you’re buying a $100,000 house, a $1000 earnest money deposit is appropriate, however, earnest money deposit can be as little as $500. Decades ago, a simple IOU or personal property can also be used as a down payment and while that is still legal today, most sellers will not accept that is a reasonable earnest money deposit.
This earnest money deposit only gets deposited into an escrow account once the seller has agreed to the offer. If there is counter offering going back and forth the earnest money stays on deposit it. Once mutual acceptance has occurred, only then will the earnest money deposit be cashed. This money will go towards the purchase of the house at closing.
Appraisal costs. Sometimes appraisal costs will be out-of-pocket. This could be anywhere from $400-$800 depending on the type of appraisal and it may be out-of-pocket so be sure to ask your mortgage officer if this is something you’ll need to set money aside for.
Inspection costs. Inspection costs are really the only other out-of-pocket cost other than the miscellaneous closing costs, which we will talk about in a moment. You will need to pay your home inspector directly as it does not get built into the closing costs process. The home inspector will be paid at the time of inspection and typically costs between $250 and $750. You are free to choose whomever you want to be your inspector as well.
Closing costs. Closing costs can be rolled into the purchase price of the home if the appraisal allows for it. For instance, if you are buying a house for $100,000 and the appraisal comes back at $120,000, you technically have $20,000 you could used for a down payment or closing costs, if the type of loan you choose allows for that. If they appraisal comes back at exactly $100,000, we cannot bump up the price to cover closing costs. These closing costs include additional fees, points, courier fees, escrow and title fees and lender fees. Both buyer and seller have closing costs to pay and they are typically between $2000 and $20,000 depending on the price of the home.
Related: Where to Get the Down Payment
So these are really the only out-of-pocket costs you need to be concerned about, but be sure to check with your mortgage lender or one of our associates for exact pricing and fees associated with the your specific purchase.
Read More: How much do you need to put down on a house?