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  • Writer's pictureDave Dail

Most people understand that when you go to buy a home you need a down payment of some sort.

However, there are other areas outside of a down payment that you will require extra cash when purchasing a home.

If you don’t know this before your offer is accepted, you can be caught off guard during the purchase process. You’ll realize your down payment will be smaller than anticipated if you do not have extra cash for these costs up front.

1. Down Payment- This is the most common cash expense when purchasing a home.

This depends largely on two things: the type of loan you are using and the cost of the home you are purchasing.

It can range anywhere from 0% (VA loan) to 3.5% (FHA loan) to 20% (30 year fixed) of the purchase price and even more for investment properties.

Simply put, you need to have this cash ready to hand over on the day of closing.

2. Earnest Money Deposit- When you go to put an offer on a home, you typically make an earnest money deposit.

This is typically (can be more) 1% of the purchase price of the home. It shows the sellers that you are serious about following through with the work required for the home transaction.

The earnest money DOES count towards your down payment. So if you have a down payment of $10,000, and put $1,000 in an earnest money deposit- at closing you’ll only owe the $9,000 of the down payment.

While this isn’t an “extra” cash cost, it is part of the cash transaction that tends to catch first time buyers off guard.

3. Appraisal- Another up front cost would be paying for an appraisal.

Most likely your bank will want to bring in an appraiser to validate the price you are paying for the house. Banks do not want to loan money to buy a property that is not priced appropriately. It is a simple process. They walk through and make sure that the home, neighborhood, and upgrades match the purchase price within a reasonable amount.

Costs of appraisals differ between states and size of property. The state of Idaho has an average rate of anywhere from $380-520 for appraisal costs. There are times where you do not need to have an appraisal. If you have a large enough down payment, and it is obvious to the bank that the house can resell for the loan amount, appraisal can be waived. However, most of the time it is required by the bank.

4. Inspection - An inspection can or cannot be required depending again on your lender and your state. However, an inspection is a wise service to pay for when you are purchasing a home.

This inspection makes sure that systems within the house are working properly. It also tells the future homeowner what needs to be fixed. Some issues like roofing can be such a huge cost to fix, that the roofing issue can play into the purchasing negotiations.

Most contracts allow 20 days to get an inspection performed. You can also find so much wrong with a property that you can decide to not purchase it at all.

Inspections again vary depending on the state and size of the property. Average inspection price is $400-$500 for a 2,000 square foot home. While that may be a lot to spend (especially if you back out of a purchase), it can save you thousands versus if you buy a problematic home without one.

5. Closing Costs - Closing costs are those costs that were incurred during the purchase that the lender dealt with during closing. Lenders are required to disclose the closing costs within a few days of the loan application.

Be on the look out for the list of fees required.

Some of these costs include: title search, title insurance, recording fees, surveys, taxes and more. Again, these costs vary by state, by loan and by purchase price. Here is a good closing cost calculator to give you a decent estimate of what to expect. Sometimes closing costs can play a part of negotiations. Maybe it is more appealing for the seller to pay the costs, or the buyer depending on the situation.

Sometimes both parties split closing costs. Other times sellers negotiate paying for closing costs instead of fixing an inspection issue.

There are many possibilities to use closing costs in negotiation.

Either way closing costs are part of the cash transaction that happens at the end of the purchase.

In Conclusion Most of these cash transactions are dependent on a lot of variables. But you can find some rough estimates of what to expect.

Hopefully you do not go into the transaction only thinking you have to pay for a down payment. If you plan adequately, you will not be caught off guard by some extra costs when you go to purchase your house.

Ideally, you'll have more than enough cash left over to treat yo self to a fun celebration gift!


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