You’ll also need to make a down payment that counts toward the home purchase price. But remember, this will go toward your down payment at closing. If you want to purchase a $300,000 home, for example, your earnest money cost will likely be at least $3,000.
“These funds usually need to be made within three days of mutual acceptance of your offer, so you need to have those funds in hand and ready to spend,” says Paige Shulte, a Realtor with Windermere Professional Partners in Gig Harbor, Washington.Įarnest money commonly equates to 1% of your offer price, unless you need to be more competitive with your offer, in which case it can represent up to 10% of your offer price. Your earnest payments are counted toward your down payment and closing costs.” “The second earnest payment is the larger of the two and typically made before your closing day.
“The first installment is usually smaller and can be returned to you if you find something unexpected during the home inspection and decide to no longer move forward with your offer,” says Guadalupe Sanchez, founder at Budgeting in Blue in Chicago. Two installments are more common for larger loan sizes and less–qualified borrowers. If it is, the monies are kept in an escrow deposit account and indicated as a credit to the buyer at the closing table.Įarnest money needs to be paid within three days of your offer being accepted, so make sure you have liquid cash available when house hunting.Įarnest money can be paid in one or two installments. When you make a good faith deposit, your check will be held by a third party, title company, or the buyer’s agent and may not actually be cashed. Provided the deal goes through, your earnest money will be applied to your down payment at closing. Note that the seller doesn’t keep the earnest money for themself. This money demonstrates to the seller that you’re serious about purchasing the property. Earnest moneyĪlso called a ‘good faith deposit,’ earnest money usually takes the form of a wire transfer or personal check paid to the seller shortly after your offer is accepted. Let’s dig into each item – and what you can expect to pay – a little further. Prospective buyers must consider such factors carefully for them to avoid confusion,” says Belcher. “The external price of a home listed is not the final payment for a house closing deal. “Knowing what to expect upfront can make a home buyer better prepared,” says Jason Gelios, a Realtor in Southeast Michigan.ĭan Belcher, founder and CEO of Mortgage Relief, agrees. It’s crucial to be aware of the upfront costs associated with buying a home so you can set your expectations realistically and have enough cash on hand when you find the property you want. Prepaid property taxes and home insurance – 6–12 months’ worth.Closing costs – 2–5% of home loan amount.Down payment – Varies (average is 6–12%).Earnest money – 1% of purchase price or more (paid first but goes toward your down payment).Collectively, these add up to your “cash to close.” There are several costs that you must pay upfront and out–of–pocket to buy a house.
What are the upfront costs of buying a home? If you understand your options and choose your mortgage wisely, you can seriously minimize your upfront costs when buying a home. The good news is, you have a lot of control over what you’ll pay. The actual amounts needed for both the down payment and closing costs can vary by a wide margin. But you’ll also pay a slate of upfront fees (known as “closing costs”) on your purchase. Many home buyers only think about the down payment when they’re saving for a house. Janu7 min read What costs do you pay upfront when buying a house?