Out-of-Pocket Fees You Should Know About When Buying a Home

It’s no surprise that the upfront money required to buy a home is the biggest reason many would-be homebuyers put off taking the plunge into homeownership.  

The good news is there are ways to tackle your down payment and closing costs without paying them all out-of-pocket. For example, you can also get help from down payment assistance programs, gift funds, or negotiating with the seller. 

So that brings us to your out-of-pocket costs – fees you’ll need to pay yourself, and some before closing. But most of these only run a few hundred dollars, some are optional, and you might be able to have the seller pitch in. Let’s take a look. 

Earnest Money Deposit (Not Required, But a Big Help) 

The earnest money deposit (EMD) shows a seller you’re serious about buying their home. Earnest money is typically around 1-3% of the sales price and is held in an escrow account until the purchase is complete. Once the deal is done, the money is applied to your down payment or closing costs. If you back out of the deal without reasonable cause, you won’t get your money back. But if the seller pulls out or fails to meet the contingencies of your agreement for any reason, you will be refunded. 

Speaking of contingencies, it’s good to include them in your contract regarding your EMD. For example, if a contingency says the home needs to pass certain inspections, and it doesn’t, the seller must return your earnest money. For some loan types, such as the U.S. Department of Veteran Affairs (VA) loan, your money will be returned immediately if the home’s appraisal value ends up lower than the purchase price. Ask your Mortgage Banker about which loans include a similar clause. 

Appraisal (Required, But Worth It) 

Home appraisals are required to help lenders determine a home’s value. Appraisal fees are typically under $500, depending on the home’s size, location, loan type, and the amount of research required for the report. 

Remember that whether you’re buying or refinancing, the impartial appraisal (conducted by a third-party company) summarizes what the home is worth based on its features, neighborhood, and comparable properties nearby. They’re a great tool in getting the honest value for your purchase or the equity you want in a refinance. Better yet, if an appraisal comes back low, you might be able to negotiate a lower asking price. 

Home Inspections (Not Required, But Highly Recommended)   

While not required, Atlantic Bay highly recommends a home inspection unless your home is new and under builder warranty. Fees usually run between $300-500. A home inspection will tell you how safe the home is and how critical features like the roof, plumbing, and HVAC are functioning. If the inspection finds repairs are needed, you can negotiate with the seller to deduct the cost of the work from the purchase price or ask the seller to make the repairs before closing. 

Of course, a general home inspector cannot address everything some properties might need. Depending on the age, location, and type of home, you might also need specific inspections for septic, lead, radon, asbestos, or pool. 

Your loan program may also determine certain inspections. For Federal Housing Administration (FHA) loans on manufactured homes, a foundation certification may be required, and VA loans require pest inspections. 

Fees for these special services vary but are usually well under $1,000. Not sure about inspections? Ask Atlantic Bay for help in determining what inspections you need and finding the right professional. 

Home Warranty (Not Required, But a Good Idea)  

A home warranty isn’t required, but it’s an inexpensive tool that can minimize your financial worries as you take on the responsibility of a new home. You don’t want to close on a mortgage and discover that the dishwasher is on its last suds. You’ll have to pay for repairs after you just ponied up closing costs. 

Warranties typically cost a few hundred dollars annually – possibly the same price as a single appliance repair, so they’re worth considering. Atlantic Bay works with Achosa Home Warranty to help our clients, but we’re happy to help you find the right warranty for you. 

Ongoing Costs (Oh Well, What Can You Do?) 

While your property taxes, homeowners insurance, and any mortgage insurance are ongoing costs typically included in your monthly mortgage payment, you’ll be required to pay a portion of these (often called “prepaids”) upfront at closing. Prepaids protect you and the lender, so when you take ownership of the house, you’re in good standing with your local government and your home is protected in case of catastrophe. (P.S. – Atlantic Bay works with AB Insurance’s* more than 30 carriers if you want to compare policies.) 

The amount you’ll pay at closing for these necessities depends on your property, location, the annual deadline for property taxes in your area, and your comfort level with insurance coverage. Ask your Mortgage Banker for a closing cost worksheet to get an estimated breakdown. 

Finally, if a homeowners association governs your property, you’ll need to pay that fee at closing, too. One month is typically $200-300 but could cost more depending on your property and amenities. 

As you can see, out-of-pocket mortgage costs are manageable when you know what to expect and have the right help – just ask Atlantic Bay! 

*AB Insurance is not available in all states where Atlantic Bay is licensed.