What are the up-front costs associated with buying a home?


The spring real estate market is here, and with all the buyers out there, I thought I’d put together a series of posts covering the various topics addressed during the purchasing process. The first in this series is what the up-front costs are in purchasing a home.

Earnest Money Deposit (EMD) — An earnest money deposit is the amount of money you agree to present with your offer and goes towards your mortgage. It is meant to show the seriousness of your offer, and in the metro D.C. area, the higher your EMD, the stronger your offer looks.

For Northern Virginia, we recommend an EMD of 2 to 3 percent of the purchase price; in D.C., that recommendation is 5 percent. Conversely, an EMD of $1,000 would indicate to the sellers that you’re likely bidding on multiple homes. Your EMD needs to be money that is readily available, so before your offer is submitted, you need to make sure you have the money in the bank for your EMD check to clear.

If your offer is accepted, your EMD will need to be turned in and held by the settlement company conducting your closing. This amount will be applied to your final purchase price, as what you have already paid.

Based on the purchase of a $500K home, an EMD could range from $10K to $15K.

Down Payment — Your down payment is based upon the mortgage loan you are obtaining. If you’re using a VA loan, your down payment will be $0; FHA loans can be 3 to 3.5 percent down; and conventional loans require 20 percent down.

Based on the purchase of a $500K home, a down payment could range from $0 to $100K.

Home Inspection — A home inspection is a survey of the home conducted by a neutral third party. Inspectors do not do the actual “fixing” of any issues they find, so they have no incentive to find extra problems since they’re not benefitting from fixing them. The cost for the inspection can range based on the size of the home and how long it takes the inspector to complete his/her work.

Home inspections can range from $400 to $700 in the metro D.C. area. 

Closing Costs — Closing costs range from 2 to 5 percent of the purchase price and can vary based on the state and county the home is located in. Some prices are set by the settlement company, other services you can shop for. Closing costs include the cost of conducting the settlement, title search and examination, courier fees, document preparation, payoff services and title binder fees, among others.

Based on the purchase of a $500K home, closing costs could range from $10K to $25K.

Homeowners Insurance — Mortgage insurance is paid by the borrower and is required for everyone obtaining a loan. The first payment is usually paid at closing.

Total — Up-front costs could range from $20,400 to $140,700 based on a $500K purchase price.

Have more questions about the money you need to close on a home? Get in touch with me at lbudik@mcenearney.com, and I’d be delighted to help you!


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