When you’re looking to buy a home, there are several expenses involved in addition to the actual purchase price of the home. It’s important to understand all the upfront costs so you are fully prepared.
To help ensure you aren’t caught off guard with any unexpected expenses, here are the upfront costs associated with buying a home.
1. Binder Deposit
When an offer is accepted, the first expense for the home buyer is what’s known as a binder deposit. It’s basically your promise to the seller to fulfill the contract. Think of it like a security deposit.
The cost of the binder deposit is typically 1% of the purchase price. However, this can change depending on the market and your specific situation. In multiple offer scenarios, a larger binder deposit may make your offer more attractive to a seller.
Binder deposits are refunded to buyers if they terminate the contract for certain reasons within specified timeframes. But if you back out of the contract for any reason you are not protected by, the money would be forfeited to the seller.
The second cost involved with purchasing a home is the inspection. You do not have to have an inspection, but we advise all our home buyers to get one for multiple reasons.
You want to be sure you know exactly what you’re buying, and a home inspection can help identify any potential issues (and additional expenses) that may come with the house. When an inspection finds problems, we can often negotiate to have the seller pay to fix them.
The price of a professional home inspection can range from $300 – $600 depending on the size of the home and what needs to be included in the inspection. For example, military buyers are required to have a Wood Destroying Organisms (WDO) inspection.
The third cost is the appraisal, and this can also vary in price. Appraisals typically range between $300 – $600. The nice thing with appraisals is that sometimes you can roll them into your closing costs instead of paying upfront. This is one of the benefits of working with a local lender – they are usually more willing to work with us on including the appraisal in the closing costs if that’s what the home buyer prefers.
4. Closing Costs
Finally, the closing costs. Closing costs are usually between 2-3% of the purchase price. With certain lenders, we can work to get the closing costs included in your loan if you want.
For our community workers, such as military members, law enforcement, teachers, nurses, and clergy, we offer a Relocation Incentive Program. With this program, we give back a portion of our commission, usually in the form of reduced closing costs.