How Much Money Do You Need to Buy a House?

When you buy a house, you will have to pay for several expenses in the process. This article breaks down the various costs, when you have to pay, and the approximate amount. Here is a summary of the expenses:

Before Closing	Estimate	At Closing	Estimate
Earnest Money Deposit	~1%	Down Payment	varies depending on the loan
Inspection Fee	$300-$800	Closing Costs	~3%
Appraisal and Credit Check	$600

Here is an example of buying a $400,000 home with a 20% down payment and paying 1% EMD

Before Closing	Estimate	At Closing	Estimate
Earnest Money Deposit	$4,000	Down Payment	$80,000
Inspection Fee	$500	Closing Costs	$12,000
Appraisal and Credit Check	$600
TOTAL	$5,100	TOTAL	$92,000*

* Remember that the $4,000 you put down as a deposit is credited to you at Closing, so you only need to bring $88,000.

Before Closing

EMD

At the time of making an offer, you have to put down a deposit called an Ernest Money Deposit (EMD). This is generally 1% of the Offer Price. For example, for a $435,000 offer, your EMD would be about $4,350 (you can put less or more, but this can affect your offer negatively or positively).

Your EMD is deposited within 5 days after the contract is ratified and placed in an Escrow Account. At Closing, you get this money back, and you can apply it toward your closing costs or down payment.

If the contract is voided, the Parties have to agree on how the fund is distributed. If the contract is voided using one of the Contingencies, money is usually returned to you. If the contract is voided and you are in Default, the Seller can try to keep the money, or they can sue you for damages.

Inspection

After the contract is ratified, you want to do an inspection. This can include a home inspection, radon testing, air quality test, lead-based paint test, and just about anything you want to inspect. Typically, the Buyer pays for the cost of the inspection to the inspector at the time of inspection.

A standard home inspection costs about $300 to $500 paid to the inspector.

Appraisal and Credit Check

If you decided to get a mortgage, the lender would require an appraisal and a credit check. You will pay for these items to the lender. These items usually cost about $500 to $600 combined.

For a cash purchase, you can opt-out of doing an appraisal, and no credit check is required.

In total, your upfront expenses total is about $1,000 plus the EMD amount.

At Closing

At Closing, there are two more expenses.

Down Payment

Depending on your loan type, you will contribute your down payment at Closing. For example,

0% for a VA loan, VHDA loan, and some other specialized loan products,
3.5% for an FHA loan,
5% or more for a Conventional loan, etc.

If you buy cash, you will pay for the entire amount of the agreed-upon Sales Price.

Closing Costs

Second, you will pay for a long list of expenses, which typically add up to about 3% of your Sales Price. These expenses include.

Settlement charges
State and local taxes
Pro-rated HOA/Condo fees
Pro-rated taxes

If you borrow money, you will also pay for:

Loan origination fee
Appraisal
Credit check
Lender’s title insurance
The first full year of homeowner’s insurance premium
Fund to set up an Escrow account
Funding fee (in case of VA loan or FHA loan)

Other miscellaneous fees include:

Home warranty
Termite inspection
Survey
Owner’s title insurance

For a cash transaction, your estimated closing costs total is about 2% of the Purchase Price (instead of 3%). For example, when you buy a $500,000 house, you save money on the following items:

Lender’s related fees = $1,500 (not including discount point or lender’s credit)
Appraisal fee = $600 (unless you want to pay for apprisal for your cash purchase)
Lender’s Title Insurance Policy = $1,900 (Enhanced Policy)
Lender’s Escrows = $1,500

So, instead of paying about $15,000 at closing, you’ll save about $5,500 and pay around $10,000.