The exact amount of cash it took to buy my house (primary residence)
Going into the home buying process can be scary if you’ve never done it before and don’t know what to expect. I know that I was scared throughout the process to lose the home due to financing issues if, for some reason, costs or fees increased and I couldn’t meet the requirements to fund the loan.
In this blog post, I’m going to walk you through the costs, start to finish, that I encountered in purchasing my primary home.
And if you’re wondering why I keep specifying primary residence in the title and throughout the post… it’s because the costs and requirements to purchase a rental property (my first property) are different - read: more intense - than those required to buy a home you’ll actually live in. I’ll cover the cost to purchase a new construction rental property in a future post.
The house
Before we get started, here is a little background on the house I bought so you can decide if it’s relevant to the area you live in. I bought a 3 story (one of those stories being a basement), 3 bedroom, 3.5 bath, 20 year old condo in the Charlotte, North Carolina area. It has two balconies (one in the front, one in the back) and a 2 car garage. The listing price was $265,000, but I offered $256,000 at 10% down. It appraised at $250,000 (an experience you can read about here), so the sellers and I met in the middle at $253,000.
The Costs
Due Diligence
Cost: $1,000
To who: Sellers
When: Immediately after signing the sales contract/when both seller and buyer have come to an agreed upon sales price and sign a formal document
Refundable: No (except in very rare cases)
Payment method: Check
About: We made our offer on a Sunday night and the sellers accepted the offer Monday morning, November 23rd (after some negotiation). This check was written out to the sellers that same Monday and given to my real estate agent, who gave it to them. The sellers cashed it within a couple of days. Essentially, once the offer has been accepted, you pay this amount as a show of good faith that you have the funds to buy the property and are invested in it. You now have a clock running to find everything wrong with the house before a specified date (check your contract, mine was December 18th). If you want to back out of the house before that date in your contract, you do NOT get the due diligence money back. This money is applied to your down payment at closing.
Earnest Money
Cost: $3,000 (or 1-3% of the sales price)
To who: Real estate agent to hold in escrow (ultimately to the sellers)
When: Within 5 days of signing the contract
Refundable: Yes, until a certain date
Payment method: Online, direct from checking account
About: After signing the contract and paying the due diligence fee on Monday, I had to pay the earnest money by that Friday to Allen Tate Real Estate LLC (who my real estate agent works for) to hold in escrow. This money is refundable up to a certain date - a little less than two weeks before closing, in my case. I paid the earnest money early on Wednesday, November 25th and had until Friday, December 18th to back out and get a refund. This money is also applied to your down payment at closing.
Appraisal Fee
Cost: $485
To who: Lender
When: 1 day after signing the contract
Refundable: No
Payment method: Credit Card
What: To get the closing process moving, you’ll end up paying this shortly after signing the contract (the lender will pick someone - don’t try to schedule this yourself!). Specifically, I paid for this service (which was charged on my credit card under the name of my lender) the day after signing the contract, Tuesday, November 24th. This process is to determine the value of the home you are trying to buy because the lender won’t offer you a home loan for more than the home is worth. While home appraisals only come in low less than 8% of the time, it happened to me and it can tank the whole deal! Get this done as soon as possible because if the deal is going to fall through due to a low appraisal, you’ll want it happen early to give yourself time to negotiate with the sellers and save the deal or while you can at least still get your earnest money back (though you’ll be out the due diligence, appraisal, and inspection fees).
Inspection Fee
Cost: $685
To who: Inspection company
When: 1 day after signing the contract
Refundable: No
Payment method: Credit Card
What: This is another process you’ll want to start as soon as possible. I paid an inspection company, recommended to me and scheduled by my real estate agent, the day after signing the contract (Tuesday, November 24th). You want to find out what’s wrong with the house as soon as possible so that you have time to negotiate with the sellers on price and to give the sellers time to fix certain items on the report before you move in. In the worst case scenario, you’ll want this done early so you can back out in time to get the refund on your earnest money if something is seriously wrong and the seller won’t fix it or give you a price reduction to cover the repair cost.
The following three costs - appraisal difference, down payment, and closing costs - are all paid in the same certified check (or via wire) on the closing date. The cost to obtain a certified check is a flat $10 fee at Wells Fargo. The cost to wire is $15.
Appraisal Difference
Cost: $3,000
To who: Closing attorney
When: At closing
Refundable: No
Payment method: Certified check (with down and closing costs) or wire
What: If you are in that group of 8% of buyers whose new home appraised for lower than offer price, you may need to make up the difference in the value the home actually appraised for and what you offered because a lender won’t allow you to borrow for more than the home is worth. I had offered $256,000 but the home appraised for $250,000 and a challenge of that appraisal did not result in a price difference. The sellers agreed to meet in the middle of the $6,000 difference - accepting a final sales price of $253,000, meaning that I needed to bring $3,000 extra in cash to the closing table. You can read about my experience with this in my blog post here.
For those curious about the timeline: We signed the contract on Monday, November 23rd, I paid the appraisal fee the next day on Tuesday, November 24th, I learned the result of that appraisal on Friday, December 11th, and heard back about the result of the appraisal challenge on Thursday, December 17th. This left me one day to negotiate the appraisal difference with the sellers, as my earnest money would become non-refundable 5pm on Friday, December 18th and the sellers wouldn’t sign to extend the date. I paid the difference at closing on Monday, December 28th.
Down Payment
Cost: $21,000 (10% down on $250,000 less due diligence and earnest money)
To who: Closing attorney
When: At closing
Refundable: No
Payment method: Certified check (with down and closing costs) or wire
What: You may be thinking… this is not 10%. And you’d be right! 10% of the home’s value would be $25,000 (remember, even though the sales price is $253,000, the bank will only provide a loan for the actual appraised value of the home - in my case, $250,000). The due diligence money and earnest money are applied towards the down payment at closing. So $25,000 minus the $1,000 due diligence and $3,000 earnest money brings me to owing $21,000 down at closing.
Closing Costs
Cost: $3,652.31
To who: Closing attorney
When: At closing
Refundable: No
Payment method: Certified check (with down and closing costs) or wire
What: Technically, the inspection and appraisal fee are considered closing costs, but I had paid these early in the process so I, of course, did not have to pay them again at closing. What’s making the cost of this section so high then? Here are some of the fees I had to pay:
Home insurance (1 year of coverage) - $705.96
Property taxes (4 months to be held in escrow) - $699.60
HOA assessment (2 months of HOA paid in advance) - $593.04
Closing attorney’s fees - $600.00
Lender’s title insurance - $421.39
Closing attorney title search - $275.00
Condo questionnaire - $265.00
Recording fees - $90
And several more smaller charges I’ll cover (and explain) in a more in-depth post soon. This section also includes seller credits/deductions for anything you have already spent (such as the appraisal fee)
Reserves
Cost: $3,006
To who: No one, stays in your account until closing
When: In your account and documented to the lender at least a week before closing, stays in your account until closing is completed
Refundable: N/A
Payment method: N/A
What: While my friend told me that she only had $81 left in her bank account after closing on her house, a lender will most often want to know that you can continue to make your mortgage payments in the event of a job loss or other unfortunate circumstance. Usually for a primary residence, you’ll have to prove that you have enough cash in the bank at closing to cover 1-3 months of mortgage payments. In my case, I had to prove (through bank statements) that I had two months worth of mortgage payments, which equaled $3,006, available in cash in my checking account (a savings account will work just as well). If you want to use the value of your stock portfolio, such as your 401K or a regular brokerage account, they either 1) won’t allow this or 2) will only count 70% of it due to market volatility or penalties - such as taxes - that you could incur from selling the stocks and withdrawing the cash. For a rental property, reserve cash required can be as much as (or even more than) six months worth of mortgage payments. After closing you can usually do what you’d like with the money, but check with your lender if there’s a requirement for how long the reserve funds must stay in your account after closing to be safe.
Total due before closing: $5,180
due diligence, earnest money, appraisal, inspection, $10 certified check fee for closing
Total check amount due at closing: $27,652.31
appraisal difference, down payment (less due diligence and earnest money), closing costs
Total cash required to buy the home (without reserves): $32,832.31
Total cash required to buy the home (with reserves): $35,838.31
I hope, for those of you aspiring to be home owners, that these numbers give you a concrete amount to save towards and make you feel better prepared for any costs that may come your way during the home buying process.
Keep in mind that the situation of my appraisal coming in low happens to only 8% of people and, even though it saved me $3,000 in the long-term off the sales price, the home coming in at full-offer price would have lowered my “Total cash required to buy the home (without reserves)”, down to $29, 832.31.
Good luck in your home buying journey!