If you’ve been thinking of purchasing a home, you might have heard that you will need to have earnest money, closing costs, and of course, your down payment. It’s normal to wonder how all these things will stack up – we’re here to break it down for you.
Earnest Money
We’ll start with Earnest Money, as it is the first point within a real estate transaction that you will need to pay funds. Earnest money is similar to a deposit – it shows the seller you’re serious about the house. Generally, these funds are held by the Title company processing the transaction, and in most cases this will either be returned to you or applied toward your closing costs. You will generally find that Earnest Money is 1% of the home price, but in some cases it can be higher. It can also be negotiated lower between your realtor and the seller’s realtor according to your needs and what the seller is willing to accept.
Note: Your earnest money can be retained by the seller if you cancel outside of your contingency deadline or for a reason not allowed by the purchase contract.
Closing Costs
Closing costs must be paid on the day of closing and this term encompasses all of the costs and fees you have incurred throughout the transaction. These include your appraisal fee, title and lender fees, money for your taxes and homeowners insurance, and more.
Closing costs can range from $2,000 to $6,000 or more. Fees will vary by state, and even by county.
Closing costs are required, but some realtors offer incentives such as rebates to help you pay your closing costs.
Down Payment
Your Down Payment is a percentage of the purchase price, and how much you pay depends entirely on your loan type. Investors can expect to pay 15% to 20% down, but programs for primary residences can be as low as 1, 3 or 3.5%. down! Eligible buyers can even borrow their down payment funds from programs such as the Colorado Housing Assistance Corporation, or receive their down payment as a grant.
Example
Let’s say you are purchasing a $400,000 property, and that closing costs come out to $5400.
If you are paying 3% down, you would also need to have $12,000.
If your earnest money was the standard 1% (-$4,000), you would need to bring roughly $13,400 on closing day.
Note: These numbers are purely illustrative. Speak to a Representative for an authentic closing cost estimate.