Home buying has contributed more to the wealth of average Americans than any other investments. But investments are a 'spend money to make money' proposition. They require careful planning and consideration. It's wise to understand the costs associated with investing in a home. Discuss your situation with one of our trusted mortgage advisors and your financial advisor to get a true picture of your specific costs. We've outlined some ideas below that you'll want to understand before you move forward.
An earnest money deposit is typically required when you make an offer to purchase a home. This fee is a security deposit, held in a trust account, typically by a neutral third party – usually an escrow company or a real estate attorney in some states. Its purpose is to signify the buyer's serious intention to complete the purchase. The deposit is forfeitable if the buyer cancels the purchase for any reason other than reasons specified in the purchase agreement. So don’t enter into this lightly.
If the purchase is to be completed, the earnest money is applied to your portion of the funds – usually the down payment and the closing costs. A rule of thumb is to expect to pay an earnest money deposit of 1%-3%.
A down payment is typically required to purchase a home, unless you're a qualifying veteran of the U.S. Armed Services using a VA from the Veterans Administration. An initial payment of 3, 5, 10, 20% or more is likely to be required based on the unique characteristics of the borrower and the transaction.
Other fees that may be required to be paid at the closing include: private mortgage insurance, homeowner's insurance, title insurance, escrow/attorney fees, points and/or origination fees, document preparation fees, survey fee, pest or mold inspection, property taxes and recording fees. That may seem like a lot, but keep in mind that not all of these fees will apply in every situation. It's possible that some fees will be waived or paid by the lender or seller.
A Commerce Home Mortgage advisor can guide you in understanding which fees and costs apply to you.