How Much Will This Cost Me?

The amount of money you spend when purchasing your home can vary. Factors such as the cost of the home you purchase, how many points (prepaid interest) you pay, and what day of the month you close on your home, all determine how much you will pay at the settlement table.

The three distinct parts of your expenses will be the Earnest Money, the Down Payment, and the Closing Costs. Let's take a look at each one.

• EARNEST or ESCROW MONEY - When you make an offer on a home, the seller will require an "Earnest Money" deposit. This is a good faith deposit that shows the seller you are truly interested in purchasing their home. The Earnest Money deposit is usually a portion of your Down Payment that is paid in advance. This money is placed in your agent's escrow account and is held there until settlement.

  Should you fail to get a mortgage, or to meet any of the contingencies of the contract, the Earnest Money deposit is refunded to you. However, should you fail to close for any other reason, you may be forced to forfeit your deposit to the seller. Ask your real estate agent about this before entering into a contract to purchase a home.

• DOWN PAYMENT - When you buy a home, your mortgage lender will require that a certain percentage of the purchase price be paid by you at closing. This is the Down Payment. A portion of your Down Payment was paid by you when you made the offer on your home. That was the Earnest Money deposit. The balance of your Down Payment will be due on the day of closing.

  The amount of your Down Payment can vary depending on the type of loan you use to purchase your home. Down Payment amounts can start at 0% down for Veteran's Administration (VA) loans, 3% for FHA loans, all the way up to 10-20%. Talk to your mortgage lender to find out which is best for you.

• CLOSING COSTS - On the day you close on your home, you will pay Closing Costs in addition to the balance of your Down Payment. These Closing Costs are determined by the fees your mortgage lender charges for arranging your mortgage loan, the amount of prepaid insurance, interest, and taxes that are due, and other expenses such as survey, title insurance, title search and recording fees.

  The CLOSING COSTS consist of many fees. They include, but are not limited to:

  • Appraisal Fee - The appraiser is hired by the mortgage company and will determine the value of your home for the lender.
  • Credit Report - The lender will use this to determine your creditworthiness.
  • Mortgage Insurance - This protects the lender against any loss if you should default on your mortgage.
  • Origination Fee - A lender may charge this to prepare documents and close the mortgage.
  • Pre-paid Interest - You will pay the interest due from the date of settlement until the end of that month. All other interest payments will be covered in your monthly payment.
  • Points - One point equals 1% of the mortgage amount. Lenders may require you to pay points to reduce your interest rate.
  • Recording Fees - The charge by the county for registering the property transfer and the mortgage in the County Clerk's Office.
  • Tax and Utility Adjustments - You will need to reimburse the seller for already-paid real estate taxes and some utility charges (water, sewer, oil) that cover a period after the sale.
  • Title Insurance - This protects you and the lender from loss caused by a defect in the propeties title.
  Your mortgage lender will provide you with an estimate of these closing costs when you apply for your mortgage loan. Remember, this is an estimate. The actual figure usually cannot be computed until the day before settlement.

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