3 Pieces of Money You Need to Know About
The Three Essential Homebuying Costs Every Buyer Must Prepare For
When purchasing a home, it’s crucial to understand the upfront costs beyond just the down payment and monthly mortgage. Three key financial components—earnest money, appraisal fees, and inspection costs—play a vital role in the transaction. Being well-prepared for these expenses can streamline the buying process, prevent unexpected financial strain, and ensure a smooth closing.
1. Earnest Money: Your Financial Commitment to the Seller
What is Earnest Money?
Earnest money is a good faith deposit made by the buyer to demonstrate serious intent to purchase a property. This deposit assures the seller that the buyer is committed to proceeding with the transaction.
How Much Earnest Money Do You Need?
Typically, earnest money amounts to 1% of the home’s purchase price, though in competitive markets, buyers may offer more to make their offer stand out. For example, on a $350,000 home, expect to provide around $3,500 as earnest money.
Where Does Earnest Money Go?
- Earnest money is held in an escrow account by a title company or escrow agent.
- Upon closing, it is usually applied toward the down payment or closing costs.
- If the deal falls through due to contract contingencies (such as financing or inspection issues), buyers may recover their earnest money, depending on the contract terms.
2. Appraisal Fees: Ensuring the Home’s Value Matches the Loan
Why Is an Appraisal Necessary?
If you’re financing your home purchase with a mortgage, the lender requires an appraisal to verify the home’s fair market value. This safeguards the lender from lending more than the property is worth.
Typical Appraisal Costs
- Appraisal fees generally range from $450 to $600, depending on the property’s size, location, and complexity.
- The buyer is responsible for paying the appraisal fee upfront, usually within the first five days of the contract period.
What Happens If the Appraisal Comes in Low?
- The lender will only finance the appraised value, not the contract price.
- If the home appraises for less than the agreed purchase price, buyers may:
- Negotiate with the seller to lower the price.
- Pay the difference out of pocket.
- Walk away if an appraisal contingency is in place.
3. Home Inspection Costs: Uncovering Potential Issues
Why Get a Home Inspection?
A home inspection is a comprehensive evaluation of the property’s condition, performed by a licensed inspector following Texas Real Estate Commission (TREC) guidelines. The inspection covers critical aspects such as:
- Foundation & Structure – Identifies cracks, settling, and other structural issues.
- Roofing & Drainage – Assesses leaks, damage, and drainage concerns.
- Plumbing & Electrical – Ensures systems are functional and up to code.
- HVAC & Appliances – Evaluates heating, cooling, and major appliances.
Inspection Timing & Costs
- Inspections occur within the first 7-10 days of the option period.
- The cost typically ranges from $250 to $1,000, depending on factors like:
- Home size and age.
- Additional features like pools, septic systems, and chimneys.
What If the Inspection Reveals Problems?
Buyers can:
- Negotiate repairs or request seller concessions.
- Proceed as-is if the issues are minor.
- Terminate the contract if the concerns are substantial and the agreement allows it.
By budgeting for earnest money, appraisal fees, and home inspections, buyers can confidently navigate the homebuying process, avoid financial surprises, and make well-informed decisions. If you’re ready to take the next step in purchasing a home, our team is here to guide you every step of the way.
