What Does it Cost to Close on a House

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The excitement of buying a new house is understandable – it’s a big milestone and a significant investment. However, it’s important to remember that the costs involved in closing on a house go beyond the purchase price. From the earnest money, down payment, and closing costs to moving expenses, there are many hidden costs to buying real estate. Budgeting for these costs and preparing for any surprises is essential to avoid financial stress during the closing process. By understanding all the costs involved in buying a house, you can make informed decisions and feel confident about your investment.

Understanding the Earnest Money Deposit

When buying a house, an earnest money deposit is a sum you put down to show your commitment to the real estate transaction. You typically pay when you make the offer to purchase, and that payment is held in escrow until the closing. The amount of your earnest money deposit is usually 1-3% of the offer price, although it may be a fixed dollar amount in some cases.

Earnest money deposits are typically an out-of-pocket cash expense. The earnest money deposit goes towards the purchase price of the home at closing. Once the earnest money deposit is paid, it is held in an escrow account, which is like a temporary savings account, by a neutral third party, such as a title company or attorney.

In general, it is important to carefully consider the terms of your contract and the potential consequences of backing out of a residential real estate deal before paying an earnest money deposit. If the deal falls through and you are not at fault, the earnest money deposit is usually returned to you. However, if you decide to back out of the deal or fail to fulfill your obligations under the contract, you may forfeit the earnest money deposit.

Putting Down Roots: The Importance of a Down Payment When Buying a Home

When buying a house, the down payment is one of the highest costs you’ll face. Your down payment is a sum of money you put towards purchasing the home, typically as a percentage of the total purchase price. The down payment size can vary, but it’s usually a significant amount of money you’ll need to save up in advance.

It’s important to note that a down payment is a cash expense, not something you can finance. This means you’ll need to come up with the money upfront before closing the house. Typically, the down payment with a conventional home mortgage loan is around 20%. However, the required down payment may be less if you’re using an FHA loan or VA loan. It’s essential to carefully consider the terms of your mortgage and the down payment size required before you start house hunting.

The more you invest in your down payment, the lower your mortgage payments will be. This is because a larger down payment means you’ll need to borrow less, resulting in smaller monthly payments. By carefully considering the size of your down payment, you can make informed decisions and save money on your monthly mortgage payments.

Closing Costs Demystified

Closing costs in real estate are fees associated with purchasing a home that is paid at the sale’s closing. These costs can include various expenses, such as application fees, credit checks, loan processing fees, appraisals, inspections, property taxes, and homeowner’s insurance. In general, closing costs are cash expense that typically runs between 2-5% of the price of the house.

Here is a list of some of the specific expenses that may be included in closing costs:

Application fee: This is a fee that the lender charges to cover the cost of processing your mortgage application.

Credit check: Lenders will usually run a credit check to assess your creditworthiness and determine whether you qualify for a mortgage.

Loan processing: The lender charges a fee to cover the cost of processing your mortgage loan.

Appraisal: An appraisal evaluates the value of the property being purchased. Lenders will usually require an appraisal to ensure that the property is worth the amount of money being borrowed.

Inspection: A home inspection evaluates the condition of the property being purchased. It is typically performed by a professional inspector and can help identify potential home issues.

Property taxes: Property taxes are fees that local governments charge to fund public services such as schools, roads, and police.

Homeowner’s insurance: Homeowner’s insurance is a type of insurance that protects the home and its contents from damage or loss. Lenders typically require it as part of the mortgage agreement.

It’s important to know all the potential closing costs when purchasing a home and to budget accordingly. Understanding these costs allows you to make informed decisions and avoid surprise expenses at the closing table.

Moving Expenses

When buying a new house, it’s important to budget not only for the cost of the home itself but also for the expenses associated with moving. These costs can add up quickly, especially if hiring a professional moving company. Some of the expenses you may incur when moving include:

Packing supplies: This includes things like boxes, tape, bubble wrap, and other materials you’ll need to safely pack up your belongings.

Professional movers: Hiring a professional moving company can save you time and energy, but it can also be costly. Be sure to get quotes from multiple companies and consider factors like the distance of the move and the size of your home when comparing prices.

Moving truck: If you’re not hiring a professional moving company, you’ll need to rent a truck to transport your belongings. Be sure to factor in the rental cost, gas, and additional insurance you may need when budgeting for your move.

Storage fees: If you need to store your belongings while you’re in the process of moving, you’ll need to budget for storage fees. These fees can vary depending on the size of the storage unit and the length of time you’ll be using it.

Repairs or cleaning: Depending on the terms of your contract, you may be responsible for making any necessary repairs or cleaning the home before you move in. Be sure to factor these costs into your budget if they apply.


Buying a house is a significant investment, and there are many costs beyond the purchase price. From the earnest money deposit and down payment to closing costs and moving expenses, it’s important to be aware of all the potential costs and budget accordingly. By understanding these costs and preparing for them in advance, you can make informed decisions and feel confident about your investment.

It’s also a good idea to work with a real estate agent, financial advisor, or mortgage professional who can help you understand the costs of buying a house and develop a plan to manage them. By carefully considering the costs of buying a house, you can make the process as smooth and stress-free as possible

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