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Home Loans – Out of Pocket Expenses – Closing Costs

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Out of Pocket Expenses When Buying a Home

Even when you finance a home with a no money down home loan, you may still need to spend some money out of pocket to close on your new home. The first step in purchasing a home with no money down is to follow our no money down loan plan. By following this plan, you will need very little money out of pocket to close on your new home.


Out of Pocket Expenses

The Deposit

One of the first expenses you will incur during the homebuying process is the Ernest money deposit. The deposit is paid when you make an offer on a home. The deposit can range from $500 to $2000 dollars. To find out how much money is customary, you will need you will need to talk to your real estate agent. The most common amount paid as a deposit is $1000.
The deposit is money paid in good faith to show the seller you are serious. The deposit is credited towards your home purchase a closing and in some cases it can even be refunded. If the seller concession on the sales contract are greater than the actual closing costs, you can get the deposit back at closing. 
I have written many articles on structuring a proper sales contract to ensure you spend as little out of pocket as possible. Some of the articles below might interest you if you want to learn more.
  1. Closing Costs Explained

The Home Inspection

When you have an executed purchase and sale agreement on your home, you may want to get a home inspection. A home inspection is a report completed by a licensed home inspector that tell you if the property is in need of any repair. 
Home inspections are not mandatory however, it is a good idea to get one. With the home inspection, you can limit the risk in purchasing a new home and have more confidence that the home is in good condition.
In addition to giving you peace of mind, a home inspection can help you in negotiating your sales contract. If the inspection report list any repairs that are needed it is common for the buyer to renegotiate the repairs prior to closing on your home. The home inspection is different than an appraisal and I have written articles on the topic that explain the differences between the two.  
The average cost of a home inspection is $275. The cost can vary in different regions of the country. You should start talking to home inspectors if you plan to buy a home. Knowing the cost will greatly help you calculate how much money you will need.
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The Appraisal

The appraisal is different than a home inspection. A home inspection focuses on property condition and the appraisal focuses on value
The appraisal compares the subject property to similar homes in the area. Utilizing the sales prices of comparable homes, the appraisal determines the value of your home. If you are doing 100% financing, the loan is equal to the value of the home or the sales price .. (whichever is lower). In the event the appraisal comes in less than the sales price, you may have to bring money money to closing or renegotiate the sales contract. Typically the appraised value matches the sales price without issue. 
The bank typically orders the appraisal on your behalf but the buyer pays the fee for the appraisal. The average cost of an appraisal is $415. The final cost could be higher or less depending on the region you are in. 
If you want to learn more about appraisals and how they can impact your home purchase click here. We do outlr bet to detail the process and how it effects the amount of money needed out of pocket. 
Our team has been financing homes for over two decades. Our experience has allowed us to properly counsel our clients to renegotiate or solve appraisal issues. By working with an experienced mortgage professional you should be able to avoid any delays or issues caused by the appraisal process.

Homeowners Insurance / Fire Insurance

In order to close on your new home you will need to provide proof of actove insurance. Typically the loan includes the cost of insurance and you will not need to pay out of pocket. In some cases the insurance agemtay require a down payment on the policy in order to issue an insurance policy. 
If the agent requires a down payment, the cost is usually only 10% of the annual policy premium. This could be as low as $50 or as high as $200. Early in the process of buying a house you should start shopping for insurance to make sure you get the most affordable coverage possible.
The cost of insurance isn’t everything! Make sure the policy covers the cost to rebuild the home in the event of a fire or other disaster.  Keep in mind that homeowners insurance is not meant to cover maintenance items. If your roof wears down and needs to be replaced, the insurance will not pick up the tab. It is the responsibility of the homeowner to maintain the property condition. 
If you would like information on reputable insurance agents in your area we would love to speak to you. We can help you start the process so you know exactly what you will spend before you start the process. Out team has decades of experience and make every effort to help our clients not only understand the loan process but all understand the responsibility of homeownership. 
So now you know the possible out of pocket costs even if you are applying for a no money down home loan. Every home has a different closing cost calculation so make sure you discuss your specific situation with your loan officer. 100% financing does not always mean “no money down”. Work with a mortgage professional than explain the unique numbers on every home you are interested in purchasing. 


Questions To Ask

Make sure you keep notes and no the answers to these questions. Take notes on the itemized costs you incur prior to closing. Label them by fee name and amount. Next make sure you ask how much additional money you will need at the closing table. The majority of our no money down home loans cover all of the costs but every client situation is different.  Try and get estimated dates that the money is needed  so you can budget appropriately for your home purchase. 
Happy Home Hunting!!