What Home Buyers Need To Pay BEFORE Closing

When I meet with home buyers, especially first-time buyers, I let them know that during the home buying process there are a few things that they will need to pay for BEFORE going to the closing or settlement table.  Most of them get a little nervous because it can get overwhelming.  But I tell them it is better to know beforehand so there will not be any surprises, or they get bamboozled.    That is what happened to me when I bought my first home!  So, rest assured, I wanted to write this post so you can be better informed and better prepared when you buy your first, or next, home!

Keep in mind that all these out-of-pocket costs are included in the closing costs that I review with buyers when I first meet them.     I want to make sure that when I inform buyers of the estimated closing costs for a particular home they are interested in, they will know how much money they will need to have in their account to purchase that home.    I want to provide as much information as I can upfront so they can make the best-informed financial decisions on the biggest purchase they will make in their lifetime.   I remember how intimidating I felt when I went through this process myself and had to figure out all this on my own. 

Out of Pocket Costs Buyers Pay Before Closing

1. Initial Deposit
   The first item that is paid out of a buyer’s pocket is early in the transaction once we have an accepted offer and the contracts are fully signed.  This is the initial deposit, which is first stated in your initial offer.  Typically, it is paid within 5 business days after the contract has been signed.    This initial deposit comes out of your downpayment amount.  This is paid first to show the seller that you are a serious buyer and so they will take the house off the market while it is under contract (or in escrow).  In NJ, the initial deposit is typically between $1,000 to $5,000 (sometimes more).  In PA, the initial deposit is typically $10,000 or more.  This money must come from one of the buyer’s bank accounts in the form of a certified check.  This money will also need to be shown in a bank statement where it came from the lender.   The more money you put down, the stronger your offer.   Note that there is a risk of you as a buyer losing this deposit if a buyer cancels the contract.  Unless there is a mortgage and/or a home inspection contingency noted in the contract then the buyer can get their deposit back.   What that means is that if a buyer indicates that if they are unable to get a mortgage or if something comes up during the home inspection, then the buyer can cancel the contract and get their initial deposit back.    This can take some time to get your deposit back up to a month or so, so keep that in mind when deciding how much of an initial deposit you want to put down on your offer.
   
   
2. Home Inspections
   Depending on the type of house that is being purchased most buyers will have a home inspection done (something I STRONGLY recommend).   Depending on which inspections are being done, they can vary greatly.  For a typical home inspection, it costs about $500 -$800.    If more inspections are needed other than the basic ones, then that will be more money you would have to pay.   The home inspections are paid on the day of inspection and is paid from the buyer directly to the home inspector.  I include the costs of the home inspection when I calculate your estimated closing costs so buyers will have a good idea of how much money will be needed to purchase a home.  To find out more about the different types of home inspections and how much they cost, check out my previous articles. Inspections You Didn’t Know You May Need When Buying A Home – Part 1 (Click Here) and Inspections You Didn’t Know You May Need When Buying A Home – Part 2 (Click Here).
   
   
3.  Mortgage Appraisal Fee
   Once you are officially under contract and things are moving forward, then it comes time to complete your formal mortgage application.  That includes paying the appraisal fee directly to your lender.   This will authorize the lender to schedule an appraiser to come out to the property and determine what the house is worth, or the value.  The mortgage company will need that value to finalize the loan and to make it meets the requirements.   The appraisal fee can vary from $500 to $700, depending on the type of mortgage that the buyer is obtaining.    This can be paid by credit card or check.     I recommend to buyers to hold off on the appraisal until after the home inspections are done and they know they are moving forward with the purchase.
   
   
4. Certificate of Occupancy (CO); Use & Occupancy Certificate (U&O)
   A Certificate of Occupancy (CO), also known as a Use & Occupancy Certificate in PA, is an inspection done by a code inspector or a fire department inspector working in the town that the property is located in.  This inspection is typically handled by the seller (or sellers’ agent) but when the market is very competitive for buyers (a seller’s market) sellers are choosing not to do this, so more buyers are fulfilling this requirement.  A certificate showing that the inspection was completed and meets their requirements will be needed for the closing.  Each town is different, but typically you pay an inspection fee which can range from about $50 – $200, then an inspection is scheduled by the township.  An inspector will come out and do a basic inspection of checking the smoke detectors and carbon monoxide detectors and make sure the correct fire extinguisher is installed in an appropriate location.  That is what is required in every town.  Some towns require more inspections such as what they consider life safety.  This can include checking the sidewalks, driveways, exterior stairs, interior stairs, etc.   They want to make sure they are correctly installed, there are no tripping hazards and meet code requirements.  If they need to be corrected, then the cost of the repairs may have to be paid by the buyer to pass the inspection.  If a reinspection is needed after the repairs are done, than sometimes another inspection fee will need to be paid again.  I recommend that this CO inspection be completed after the home inspections are done and the buyer knows they are moving forward with the purchase. 
   
   
   At Closing
5.  Balance of Deposit and Closing Costs
   Once everything is completed and the closing day is scheduled, the buyer will be notified by the title company of how much money to bring in a certified check or have a wire transfer of the balance of the downpayment and closing costs.  Once the check or the wire transfer is received and all the documents are signed, then the buyer receives the keys to their new home!  YEY!!  😊

There you have it!  These are the “out-of-pocket” costs buyers will need to pay BEFORE closing.  It’s good to have this information so you won’t be surprised during the transaction and make sure you have the funds lined up and ready to go when the time comes.   I was caught off guard when it happened to me and I don’t want it to happen to you. 

If you have any questions or if you are ready to start or restart your homebuying journey, email me at ccr@ccrsellsrealestate.com or click on the link below to schedule a quick chat.  😊