When buying a home, most people factor the down payment and the mortgage, but there are other fees that are important to keep in mind when purchasing a home. The costs of buying a home fall within one of two categories: out of pocket costs and costs that are paid at closing.
Keep the following fees in mind when planning to purchase a home.
Out of Pocket Fees (listed in order of when you’ll traditionally pay them)
Earnest Money – this is your commitment to purchase the property. It’s money you will take to the title company and it will be held in an escrow account, which is where it’s held until all parties complete the necessary steps to complete the sale. Once all the conditions in the transaction are met, the money is released and applied to your down payment or closing costs. The amount of earnest money varies, but as a general rule, it is about 1% of the purchase price. If you back out of the purchase for an approved contingency, you will get your earnest money back.
Inspection – Most homebuyers want to have an inspection done of the property they are under contract for as a way to ensure they are aware of the condition of the home, including recommended repairs. I have many inspection companies I have worked with that I can recommend if you’d like help in hiring a company. Typically, we schedule your inspection to be completed within a week of when your offer is accepted. During the inspection, a certified inspector will review the home, including the roof and major systems and appliances, to let you know if anything needs to be fixed immediately or if there’s damage that you may not be aware of. They may also check for pests, lead-based paint, or flood damage. Typically within 24 hours, you will receive a full inspection report detailing their findings and recommendations. You will pay the inspection company directly. The cost of an inspection is usually based on the size of the property and ranges from about $300-$500.
Sewer Scope – The sewer scope is typically done on the same day as the inspection. During the sewer scope, a certified inspector will examine the sewer line using specialized camera equipment, which allows them to see the condition of the sewer line and to identify issues. Similar to the inspection, you will usually receive the report within 24 hours and they will provide their findings and recommendations. A sewer scope typically costs between $140-$400, although most are usually on the lower end of this range.
Radon Test – Radon is a radioactive, odorless, colorless gas formed by the decay of radium in soil, water and natural gas. It is the number two cause of lung cancer. The Environmental Protection Agency recommends that all homes be tested to ensure the gas is below recommended safety levels. Radon testing is usually done at the same time as the inspection (it takes 48 hours for an accurate reading) and the price can vary, but it is usually between $400-$600.
Appraisal – The appraisal is often required by lenders to ensure the amount you’ve offered to pay for the home is not more than the appraised value of the home. The lender wants to reduce their risks associated with lending you more money than the value of the home. The appraisal is scheduled and ordered by the lender. Some lenders will allow this fee to be paid at closing, while others will require you to pay the fee directly to the third-party appraisal company. The appraisal usually costs between $500-$800.
Paid at Closing:
Down Payment – This is a percentage of your home's purchase price that you pay when you close your home loan. The amount of your down payment is usually looked at based on a percentage of the home. There are different down payment amount requirements based on your financing (FHA, conventional, VA), credit score, and the home value. The down payment amount is usually between 3%-20% of the purchase price.
Closing Costs – These are all the expenses involved in the purchase of your property. This includes the processing fees you pay to your lender. Lenders charge these fees in exchange for creating your loan. Closing costs may also include your appraisal and title search costs. The closing costs you’ll pay will depend on the type of loan you’re using, but will usually be between 3% and 6% of the total value of the home you’re purchasing. You will pay these at closing.
Transaction Fee – This is a fee you pay to the real estate brokerage of your agent, which includes record storage in compliance with Colorado law and accessibility for Real Estate Commission review. Transaction fees are typically between $275-$400.
The graphic below outlines this same information for better understanding of fees, how much they are, and when they are paid.
In addition to these fees, sometimes, there may be additional fees based on your financial situation, location, agreement with the seller, if you’re purchasing a property with a homeowners association fee, or other factors. To better understand what your home purchasing fees might be, reach out and let’s chat through your situation.
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