The amount of money you'll need on-hand to buy a home will vary based on a number of factors, but we can help you get a basic idea of the range you can expect. The out-of-pocket expenses for a home purchase typically range anywhere between 3% and 7% of the purchase price. The information provided here is general information regarding the most common charges we see in our area; however, unique or uncommon situations can make these numbers change. Just remember whenever you're ready to buy, your Hall & Nixon agent and your mortgage lender can advise you on a more pinpointed number based on your specific situation.
Purchase Price & Down Payment
Obviously, the largest portion of the money you'll need will be for the purchase price of the house. However, if you are financing the purchase using a mortgage loan, the bank will supply the majority of the purchase proceeds at closing in the form of a mortgage loan. Depending on the type of loan you obtain, you may have up to a 20% down payment required at closing (in some rare cases, your down payment could be even more, but your lender will explain if this applies to you).
There are mortgage loans available that offer 100% financing (meaning no down payment would be required) - a couple of examples that are commonly used in our area are VA loans (for veterans and active military) and USDA loans (for rural areas with income limit restrictions for the household). Depending on your credit, you may also qualify for FHA (a government-backed loan with 3.5% down payment) or a conventional loan with 3-5% down payment. The options may seem overwhelming, but your mortgage loan officer will walk you through all of the specific details and can recommend the best option for your financial needs.
Closing Costs
Closing costs consist of a variety of services and fees, and these are the most common:
- Mortgage Loan Origination/Funding Fees: These fees vary based on the lender and the type of loan, but typically these fees are 1% of the purchase price or less; sometimes these fees can be included in the loan amount, rather than being paid directly out-of-pocket at closing
- Appraisal: A typical appraisal in our area runs between $450-600; the lender will order the appraisal on your behalf, and will likely charge you for the fee up-front since an appraiser must be paid at the time of service
- Credit Report: Your lender will likely charge you a small fee ($100 or less) to run your credit report; they may require this fee to be paid up-front, or allow it to be paid at closing
- Home Inspection, Termite/Moisture Inspection & Report, Septic Inspection, Surveys, etc.: You will have various inspections available to you, and each will require payment at the time of service; inspections typically cost anywhere between $50-600 each, depending on the type of inspection or report
- Insurance (Homeowners' & Flood Insurance, PMI, Title Insurance, etc.): If you are obtaining a mortgage loan to purchase the home, you will likely have an escrow account set up with your lender so that a portion of each mortgage payment will be set aside to cover your insurance premiums and property taxes annually; your lender has a specific algorithm that tells them how much they can collect at closing for these items, but it is typically based on about three months' worth of premiums; for example, if your annual insurance bill totals $2400 ($200/month), at closing you will need to provide approximately $600 toward your escrow for insurance premiums (and the same general rule of thumb will apply to property taxes as well); if paying cash for the home (without a mortgage loan), you will need to pay the entire annual insurance premium at closing
- Property Taxes: At closing, you will need to cover the property taxes for the portion of the year that you will own the property; if you are purchasing with a mortgage loan, you will also have some of the taxes collected to establish your escrow account for the following year's tax bill (as mentioned above under the insurance section)
- Attorney: An attorney will handle all aspects of your closing in NC (title search, document prep, closing, recordation, etc), and their fee will vary based on the amount of work involved; if you are paying cash for the home, the attorney's fee will be less than it would with a financed purchase because the attorney will not have to spend time coordinating with the lender and preparing loan documents for execution at closing; attorney's fees typically range between $500-1500 in our area
- Recording Fees: The courthouse charges a fee for documents to be recorded with the Register of Deeds, and your attorney will pass the cost through to you at closing; these fees are charged per page recorded, so the fees typically land somewhere between $75-300; there are more pages to record with a financed purchase because the attorney must record the deed and a deed of trust
Earnest Money Deposits & Due Diligence Fees
Although both of these will be credited toward your purchase price at closing, you do need to budget money to set aside for earnest money deposits and/or due diligence fees, which are due at the time the contract is ratified. Earnest money deposits are held in an escrow account until closing, and the money is set aside just for you. Due diligence fees are paid directly to the seller, but also get credited toward your purchase as long as you complete closing. Your agent will guide you during offer negotiations on which type of deposit will be necessary to secure the deal. Typical earnest money deposits and due diligence fees range between $500 and $5000.
Negotiations
Depending on the market, you MAY be able to negotiate for the seller to pay some or all of your closing costs. However, in a hot seller's market, you should be prepared to cover your closing costs yourself. In some multiple-offer situations, we have even seen buyers pay the seller's closing expenses in order to sweeten the offer. If you are short on cash and will need the seller to agree to pay closing cost concessions for you, make sure your offer price takes this into account. Again, your REALTOR® will help advise you during negotiations so that you have the best chance at securing the home you desire.
