Hidden Costs? Not on Our Watch! Know Every Expense Before You Buy!

After you make an offer on a home, there are 3 times* when you will be asked for money before closing:

 

  – Reserve Funds

 

EARNEST MONEY: When you submit your offer, your agent will ask how much earnest money you are willing to offer. This money is part of your down payment that will be held by closing escrow to ensure that you are serious about purchasing the home. 

   If the home fails your inspections, the money is refundable during the inspection period.

   After the inspections are complete, and you sign off, the money becomes non-refundable and goes toward your total down payment amount. 

   Many agents don’t mention this because it’s not technically an “extra expense,” since it gets applied to your down payment – However, it is important to know about in case your down payment funds are still tied up in an awaited tax return, or stocks, or retirement accounts. 

   Earnest Money is usually expected to be around 1% of the purchase price.

 

INSPECTION: An inspection is required as part of the loan package in Washington, but is voluntary in Idaho. The basic inspection package is usually $550 – $650 for a 2000 sqft home with garage. If the home has an older plumbing system or trees around where the sewer line is buried, a sewer line inspection is also highly recommended. There are other inspections as well, but these are the 2 that are usually the most important. Plan to reserve a total of $850 for these 2 inspections. 

    The inspector will provide you (and your lender if buying in WA) with a 30-80 page write up of every system in the house. 

   Money spent on inspections in not refundable

 

APPRAISAL: An appraisal is required by every lender. The purpose of the appraisal is for the bank to make sure that the home is worth the amount they are loaning on it. Whether you pay for the appraisal up front depends on the lender. MOST of the time, the appraisal will be refunded or credited back at closing, but check with your lender to make sure.

 

Reserve Funds: Some loans will require that you have a certain amount of money in ‘reserve.’ This money does NOT go toward purchasing the home. You get to keep it. These funds usually amount to about 2 house payments and are intended to stay in your bank account in case you have an emergency later down the road and need to make your house payment. This is more common for ultra low down payment loans to 1st Time Home Buyers, and Buyers who may have less stable credit or finances. These funds can be your emergency savings account (since you aren’t actually going to spend it!), or even a monetary gift from a friend.

 

In North Idaho & Eastern Washington, an appraisal usually costs $400 – $600 for a home in the city, and $450 – $850 for a home or property way out in rural areas. 

 

Earnest Money, Inspection, Appraisal, and Reserve Funds – 4 times when you will be asked to pay before closing. 2 of these are typically refunded back to you in the end, and 1, the Reserve Funds, never even leave your bank account.

 

The best type of home purchase is the kind with no surprises! The more you know, the better equipped you can be!

 

*Every buyer and every loan is different. There are other expenses that may come up only in special circumstances. These 3 are the most common.