Out of Pocket Costs to Purchase a Home

Although most of the costs to purchase a home are due at closing, there are a couple of up front costs that you, as the buyer, will need to have money for. These include your earnest money and the cost for inspections.

Earnest Money

Earnest money is provided to your real estate agent at the time you make an offer on a home to show good faith that you "earnestly" desire to purchase the property. Although the amount of the earnest money is negotiable, for planning purposes you can assume it will be around 1% of the purchase price. If the offer is accepted by the seller, the earnest money will be deposited into a trust account.

If the offer is rejected or rescinded because of contingencies listed in your offer, the earnest money is returned. For example, if the offer is contingent on a home inspection and the inspection shows multiple problems that would costly to repair, you can withdraw the offer and receive your earnest money back. However, if you back out for any reason other than those stipulated in the offer as contingencies, you will likely forfeit the earnest money to the seller. If the sale closes, the earnest money is counted towards your purchase price.

Inspection Costs

As with any large financial decision, you will want to make sure your investment is sound before making a final purchase decision. In the home buying world, one of the best ways to do this is to perform necessary inspections. The prices of a home inspection will vary, but for budgeting purpose, you can plan to spend between $200 and $500. Payment for an inspection is usually made by the buyer and is due to the inspector upon service, NOT closing. In addition to a home inspection, there are other inspections you may choose to invest in as well. These include but are not limited to a mold inspection, well water test, septic pumping and inspection, and a radon test.

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