What are the costs involved with a home purchase?

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When helping buyers, we’re often asked to provide a breakdown of costs involved with the purchase process, so they can plan for what lies ahead. There are many factors that contribute to these calculations, such as property price, loan program, and taxes to name a few. But once those elements are established, your Realtor can provide you with a property-specific estimate, which should incorporate most of these costs, so you know what to expect and can be financially prepared for the purchase.

1. Earnest Money

This is your initial deposit, the amount of which is a negotiable term in your offer to the seller. Typically, the earnest money deposit is approximately 1% of the purchase price, but you have the option of offering more or less. This deposit can be made in the form of a personal check and should be delivered to the listing brokerage within 1-2 days of acceptance. They will hold the money in escrow until closing, at which time it is deducted from your total cash to close.

2. Inspections

We always recommend an inspection and offer a list of preferred inspectors to our buyers to help with selection. A typical inspection costs approximately $400. This number can be higher for larger homes and lower for smaller homes. There are additional inspection options/tests, such as radon, termite, water, mold, septic, and sewer lines. Each of these are optional and will be add-on costs to the general inspection.

3. Appraisal

An appraisal is almost always required when the home purchase is being financed. Your lender will order the appraisal and will request payment up front, which usually costs approximately $400-$500. If you are paying cash for the home, an appraisal is not required, but you always have the option of ordering one. We can also offer a list of preferred appraisers to our cash buyers to help with selection.

4. Survey

A land/lot survey is optional. Typically, when a buyer is interested in this information, they will request a Surveyor Location Report, which is a survey where corner markers are not set and costs approximately $150. This fee can be paid at closing. The other option is a Boundary Survey, which is a survey where corner markers of the property are set prior to closing. These tend to cost significantly more.

5. Home Warranty

A home warranty is optional and is a negotiable term in your offer to the seller. This coverage is used to help with repairs on mechanicals, appliances, plumbing, etc. The annual premium is approximately $500 and is usually paid at closing by buyer or seller, depending on what was agreed to in the contract.

6. Homeowner’s Association

In addition to any pro-rated annual fees, HOAs oftentimes charge a transfer fee. This fee is usually split between buyer and seller. Startup fees, if any, are charged to the buyer. Transfer and startup fee amounts vary but are usually no more than a few hundred dollars.

7. Pre-Paids

This is the term used to refer to homeowner’s insurance, property taxes and mortgage interest that are required up front when purchasing a home. These “closing costs” start your escrow account. Lenders won’t know the insurance or tax amounts right after you apply for a mortgage. They give you approximate numbers using the information available to them at that time. After you select an insurance company and lender/title verify tax amounts, you will receive a revised loan estimate. Indiana taxes are paid in arrears, so you will also receive a pro-rated tax credit from the seller to cover taxes that are not yet due and payable.

8. Title fees

These “closing costs” are the fees the title company charges, such as title services fee, closing fees, recording fees, doc prep, etc. Fee amounts vary but are typically $500+.

9. Lender fees

These “closing costs” are the fees your lender charges, such as application fees, processing fees, underwriting fees, credit report, doc prep, etc. Fee amounts vary, depending on the lender and loan program.

10. Down Payment

When financing a home, this is the most substantial cost of the entire process. Depending on your goals and loan program, the down payment can range from as low as 3% to over 20% of the purchase price.

Several of these costs are paid prior to closing, such as earnest money, inspection, and appraisal. The remaining costs are usually paid at closing, all of which total to your “cash to close” number. Your lender will provide you with an estimate early in the transaction and then a final number will be given to you just before closing. If over $10,000, you will be required to submit the funds in the form of a wire transfer. Prior to making an offer, your Realtor can provide you with a property-specific estimate, which should incorporate most of these costs, so you know what to expect and can be financially prepared for the purchase. Our team is available to offer further clarification on any of the items listed above. Please feel free to contact us anytime with your questions and concerns.

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