Funds Needed in the Purchase of a Home
Below are some of the most common funds needed when purchasing a home.
Earnest Funds: These are the funds needed at the time an offer is submitted to purchase a house. Usually only 1% is required, however some sellers may require more. These funds are normally not cashed until there is an accepted offer. Then the check is sent to escrow to be cashed, the check opens escrow. At this point some escrow companies or seller will require the check be in the form of an official bank draft. Earnest funds are counted as part of your down payment and can be put toward the down payment or closing cost.
Down Payment: The balance of your down payment will be due at the end of the escrow period. Escrow will inform you of the amount due, i.e. if you already said you are putting down 3% of a $100,000 purchase price, your earnest funds were $1,000 then you would have $2,000 + any closing cost not cover by seller due. These funds need to be in the form of an official bank draft or wired from your bank to the escrow company. Many buyers will bring the check to the signing of their documents.
General minimum down payment amounts:
- VA – no down payment required.
- FHA – 3% of purchase price.
- Conventional – 5-20%
- Investor – 20% of purchase price
- Check with your lender as these amounts are meant only as a guideline, and lending polices are constantly changing.
Appraisal: After an accepted offer an appraisal has to be done. This is ordered by the lender, most lenders will require this to be paid at the time it is ordered. It has to be paid up front just in case the purchase does not happen – the appraiser still needs to be paid for his work.
Termite Report: In a standard sale this will be paid for by the seller. But in today’s market if you are buying an REO, the bank, most times, will not pay for a termite inspection report or any work that may need to be done. You could be required to pay for the work to be completed yourself. Work with your realtor as they will help you with information to decide if you should request it or not.
Home Inspection: The home inspection happen after you have an accepted offer. Price is based on the square footage of the house, starting at about $175.00 for smaller homes under 2,000 square feet. The price will also increase if you need to have the roof, septic tank, pool, or other out buildings inspected. Many lenders are now requiring a home inspection to be sure it is sound.
Closing Cost: Right now Sellers are helping with closing cost, but it may not cover it all. Be sure to ask your lender to give you a good faith estimate when you are qualifying with them, this way you will have a better idea of what to expect. After you have an accepted offer they should give you another one, as they will then have all the correct amounts; purchase price, seller’s credit for closing cost, interest rate, taxes, etc.