Infographic - Money Needed From Home Buyers

It’s exciting when you start the thinking process of buying a new home.  Your mind becomes consumed with where you want to live, how big of a home you can buy, amenities, and so on.

Well, this article will go over the “not so exciting” part of buying a home – how much money will you need to have.  I’m not talking about the price of the house either.  Here you’re going to see some of the costs that most people don’t consider before their next purchase.

Money Needed From Home Buyers

Most people do not buy homes everyday so if one or two of these items have slipped your mind – no worries.  Read this over and then get with your Realtor.  They will be able to give you a little more detail and explanation on how these costs relate to you in your area.  Different parts of the country have different customs and price tags but your agent will be able to narrow down the actual amount for these common expenses.

Banner - Earnest Money Deposit

You may have heard of the phrase before or vaguely remember it when you bought a house 10 years ago.  The earnest money deposit has also been called a “good faith deposit” or “consideration”.

When you write an offer to purchase any real estate, there will always be a paragraph that brings up earnest money.

So what is it exactly?

The earnest money deposit is actually put in place to protect the seller in case you were to default on your purchase agreement.  The buyer gives a certain amount of money in “good faith” that they will abide by the terms of their contract.

This money is held in escrow during the contract period and will be credited back to the buyer at closing, as long as they followed the terms of the contract.

How much is it?

The simple answer is – there is no set amount or percentage.  However, different parts of the country do different things. (Who sets these traditions anyway?)  After reading an article on the subject from my friend, Bill Gassett, I found out that the typical amount of the EMD is much higher where he works in Massachusetts than it is where I’m a Realtor in lower Alabama. 

See his article and others at the bottom of the page.

I’m accustomed to seeing amounts anywhere from $500 for lower end properties to 2% of the sales price for higher priced homes.  Again, there is no rule no matter where you live but one thing is for sure.  The higher your earnest money deposit, the more serious you look to the seller.

Check with your Realtor to find out what’s typical where you live.

Banner - Home Inspection

Everyone knows that they should get a home inspection so this cost is probably not off the radar.  However, some buyers find it enticing to forego this cost if the home is new construction or they just want to save money.

Don’t do it!

Don’t skip getting your own inspection, no matter what home you’re buying or how you feel about the house – new construction or not.  

You will quickly fall out of love with your new home if you are later surprised to find your home in flames because of a faulty electrical socket (something an inspector would have found).  

So, how much?

This cost usually goes along with how big the home is, ie. square feet.  The price can also increase if you need mold testing, thermal imaging, etc.

Again, different areas – different prices but where I’m licensed, the home inspection usually runs anywhere between $350-$550.  With a qualified, professional home inspector you will likely get a detailed report covering every aspect of the home you’re about to purchase.  You can then take the results of this report and decide whether you want the seller to make any repairs. 

Whatever you decide to do, at least you won’t be blind-sided by the unknown.

Banner - Wood Infestation Report

Termites and other pests can literally destroy real estate so it goes without saying that you would want to get a clean bill of health in this regard.  If you’re getting a mortgage, the bank will probably require this inspection but if they don’t or you’re paying cash, get it done anyway.  

These pests can often go undetected for as long as it takes to do thousands of dollars worth of damage to your home.  The pest control guy/gal will thoroughly inspect your property to see if there is any indication of a bug problem.  If there is damage, the seller will need to have it remedied. 

Oftentimes, the seller doesn’t even realize that 30% of the studs behind their wall are eaten away by termites.  Get your inspection and then get on an annual treatment program for future protection.  The inspection will cost you around $100-$150.

A pest inspection equals peace of mind.

Banner - Professional Appraisal

If you’re getting a mortgage, you will automatically have to get an appraisal because your bank will not lend money on anything without a proper value.  Most people know this but some lenders allow this cost to be in the closing costs and some want the fee to be paid outside of closing.  Either way you need to be prepared.

For the average house, you’ll be looking at a cost of around $400.

Around 25% of the buyers that I work with pay all cash for their property so getting an appraisal is not “required”.  I still recommend it anyway.  Realtors can do a good job at nailing down the value of a home but the professional appraisal is what you want in the end.

Realtors determine value to help you negotiate your contract according the market conditions.  The appraiser will fine tune the figure.

Banner - Down Payment

Most people are aware of the need for a down payment, however, they often don’t know exactly how much they will be required to have.

Every buyer is different.  They all have different incomes, different debt, different assets, and credit scores.  Some are former military and some want to live in rural areas.  There are many programs available to you and it’s essential to have your loan officer explain them to you.  

You are likely to find that your down payment will either be 0%, 3%, or 5% of the sales price.  Which direction you end up going is determined by many factors:

  • Are you a veteran?
  • Are you buying in a rural area?
  • How much money are you making?
  • What is your credit score?
  • and others…

Banner - Closing Costs

Both home buyers and sellers will have their own closing costs.  For buyers, here are the fees that are typically involved:

  • Loan origination fees
  • discount points
  • title insurance
  • appraisal (unless paid outside of closing)
  • document preparation
  • title examination fee
  • recording fees
  • Pre-paid figures for home owner’s insurance, mortgage insurance, and property taxes

There is no set percentage or amount to figure on but roughly, you could see closing costs to be anywhere from 3%-4% of the sales price.

One the other hand, you can ask the seller to assist in paying some or all of your closing costs.  This has everything to do with negotiating the terms of the contract and current real estate market conditions in your area.

As you can see, you’re going to need some money when buying a house other than just the loan.  You may have already known this so good for you.  Just consider this your friendly reminder. 

Welcome to the exciting journey of buying your next home!

Additional Resources on Money You Need as a Home Buyer:


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This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.