When you think about the money you need to buy a home, what comes to mind first? Probably the mortgage and down payment, right? While both are crucial for buying a home, there are other costs that buyers will need to pay before signing on the dotted line. If you’re planning to buy a home, don’t be caught off guard. Make sure you factor into your budget these other upfront costs for buying a home.
1. Credit Report
$30.00 – $50.00
To determine if you qualify for a home loan, the lender will want to pull a credit report. The cost for this report falls on you, the person applying, and will depend on the service the lender uses. While regular folks can pull credit reports for free from places like CreditKarma, lenders pull credit reports specific to their industry. What you see is a general report that gives an overall assessment of your credit, which is why you may notice a slight difference in scores. The credit report is paid for during the loan application process.
2. Home Appraisal
$300.00 – $1,000.00
When the formal loan application is filled out and signed, the lender will request payment for the home appraisal. Some lenders allow payment of this at closing but most are requiring payment upfront now. Even if the loan does not move forward after the appraisal, the appraiser still needs to be compensated for their service. The cost will depend on where you live and the size of the home. In Wilmington, this cost most commonly falls around $550.
3. Due Diligence Fee
$200.00 – $1,500.00+
Once you find a home you love, the next step is to make an offer, which may or may not include a due diligence fee. The due diligence fee is a negotiation tool that shows the seller how serious you are about buying. It basically compensates them for taking the home off the market while you investigate any factors that may inhibit your ability to purchase the home or use the property as you hope. The due diligence fee is nonrefundable, even if you don’t go through with the home purchase, but it is credited to you at closing. You pay this within 3-5 days of when the seller signs the offer.
4. Earnest Money
$1,000.00 – $2,500.00+
Earnest money shows the seller that you are serious about buying their home. It’s included in the offer to purchase and presented once the seller signs the contract. However, unlike the due diligence fee that is given directly to the seller, the earnest money deposit is held by the listing firm or real estate attorney. If you terminate your offer before the end of the Due Diligence Period, you get that earnest money back. If you go through with the offer, the earnest money is put toward your purchase at closing. The amount often depends on the purchase price and your budget, but it’s typical to see $1,000 to $2,000 of earnest money in the greater Wilmington area.
5. Home Inspection
$300.00 – $600.00+
Home inspections are not usually required for home loans; however, we encourage everyone to get a home inspection, including cash buyers. Paying for a home inspection upfront can save you a lot of money down the road. Home repairs can cost thousands of dollars, sometimes even tens of thousands where structural damage is concerned. The seller may even be willing to pay for some repairs prior to closing to get the home sold. They are presented in the Due Diligence Request and Agreement. In Wilmington, the average cost of a home inspection is about $400, but it depends on the size of the home, and it’s paid for when services are rendered.
$350.00 – $600.00
A land survey shows the property lines, building setback lines, easements tied to the lot (water main lines, neighborhood walking trails, etc.), property encroachments, etc. It makes you fully aware of the land you’re purchasing and its limitations. Like the home inspection, the cost of a survey depends on the size of the job, but the average survey in Wilmington is about $400 and it’s paid for upon survey completion.
7. Miscellaneous Closing Costs
2% – 5% of Purchase Price
Every home purchase is different, which is why the closing costs can vary widely. Nationally, the average is about 3% and can include a loan origination fee, attorney fee, closing fee, title fee, courier fee, HOA transfer fees, homeowner’s insurance, loan discount points, prepaid interest, private mortgage insurance (PMI), property tax, recording fees, transfer taxes, underwriting fees, etc. So, if the average sale price in Wilmington is $289,345, the average buyer needs to calculate $8,680.35 in closing costs. These are paid at closing. If you are using proceeds from the sale of your current home, you may not need to spend as much time and effort saving money for them as you would the other costs listed above.
Finally, one thing you should keep in mind when budgeting your home purchase is a cash reserve. During the first month of owning your home, you will not only be paying your first mortgage payment but also the costs of service transfers (cable, satellite, phone, internet, security, etc.), a moving truck and crew, and miscellaneous expenditures, like buying a refrigerator if one doesn’t convey with the home. Make sure you save money to cover these costs.
If you have any questions about buying in the Wilmington area, please don’t hesitate to reach out to us. We are never too busy to answer your questions.
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