When Do I Pay Out-Of-Pocket Costs?

You already know you need some sort of down payment (unless you qualify for a zero down VA loan). However, there are several out of pocket costs you’ll also need to cover, so be ready to plunk down some cash at various stages of the home buying process.

At Offer Acceptance

There are several things that will be expected when a seller accepts your offer.

Earnest money

You’ll need to hand over some earnest money within 3 days, and the money will go in an escrow account. This helps protects the seller in case you flake out on the home purchase and they have to go through listing the house all over again and potentially missing out on a better offer because they took the house off the market.  

You can get the escrow money back if you walk away based on contingencies written into your contract. For example, if you intended to buy the home, but it appraised far below listed price or the home inspection came back with a host of expensive issues, you should be able to bow out at that point and get your earnest money back. 

Earnest money might be just a few hundred dollars, or it could be 1-2% of the home’s sales price or even more. Competitive markets mean that sellers can demand higher escrow deposits to filter out less serious buyers. Escrowed funds can be applied to other costs down the line if the home sale completes.

Prepaid Items

In addition to earnest money, you will also need to pay for the home appraisal, which is typically mandated by and arranged by your lender, and a home inspection, which you will handle and which should almost never be skipped. These fees are nonrefundable even if you end up not buying the house. 

These funds can also be placed in escrow and paid out as required as the home buying process advances. When all parties have fulfilled obligations under the contract, escrow is released as directed in the contract terms. 

At Closing

At closing, there are a few more items you’ll have to settle to finish the process.

Closing costs

On your closing date, you’ll have to pay the remainder of your closing costs (some may be covered by funds being released from escrow.) Closing costs can range between 2% and 4% of your purchase price. You might be able to get the seller to kick in and cover some of these costs.   

Three days before you close, you will get a disclosure that tells you exactly how much is still owed, and you can bring a cashier’s check to closing with you or wire any funds not covered by the existing escrow. 

Down Payment

Also due at closing is your down payment. It can typically be wired just like any other funds. It’s important that your bank has been notified and is aware the transfer is upcoming, so you can ensure the funds clear before EOD.  

Your Loan Officer can help you get all of your ducks in a row before each payment is due, and help you navigate escrow and wire transfers.