Out of Pocket Costs Every Homebuyer Should Expect
Buying a home is exciting—but let’s be real, it’s also a huge financial commitment. And while you may be focused on your down payment or loan approval, there are quite a few out-of-pocket expenses you’ll need to cover along the way—before you even get the keys. Some are expected, and others catch buyers off guard. Let’s break it all down so you can feel more confident (and less surprised).
1. Earnest Money Deposit (Usually 1% of Purchase Price)
Once your offer is accepted, you’ll need to submit what's called “earnest money”—essentially a good faith deposit that shows you’re serious about buying the home. This money gets held in escrow and later applied toward your down payment or closing costs.
💡How it’s paid: Usually by wire transfer or cashier’s check, and you’ll need to send it within a couple of days of the offer being accepted.
2. Home Inspection ($300–$600+ depending on size and location)
This isn’t required by your lender, but it is highly recommended. A general home inspection checks the property’s major systems and structure, and helps you understand exactly what you're buying. You may also choose add-ons like sewer scope, radon testing, or pest inspection (each with an added cost).
💡When: Paid at the time of service, typically within the first week or so after your offer is accepted.
💡How: Paid by credit card, check, or occasionally via online invoice.
3. Appraisal (Usually $500–$800)
The lender orders the appraisal to determine the home’s market value and ensure they’re not loaning you more than the house is worth. While the lender orders it, you pay for it.
💡When: Often paid upfront when you start your loan process or rolled into closing costs (depends on the lender).
💡How: Usually credit card or ACH through your lender’s portal.
4. Closing Costs (Typically 2–5% of Purchase Price)
Closing costs include a lot of things: lender fees, title insurance, escrow fees, and prepaid property taxes. While you may negotiate for the seller to contribute toward these, you should be prepared to pay a portion out of pocket.
💡How it’s paid: Usually via wire transfer or cashier’s check to the escrow company right before closing.
5. Credit Report + Application Fees ($30–$50)
Some lenders charge small fees for pulling your credit and processing your application. It’s not always a large expense, but it’s good to ask ahead so you’re not caught off guard.
💡How: Typically paid online during the loan application.
6. Homeowner’s Insurance Premium (Varies)
Your lender will require you to have a homeowner’s insurance policy in place before closing. In many cases, you’ll need to pay the first full year premium upfront at closing, which can range from a few hundred to over a thousand dollars depending on the home and coverage.
💡How: Usually paid at closing, but sourced from your own funds (not rolled into your loan).
7. Moving Expenses + Utility Setups (Varies)
This one isn’t part of the home purchase paperwork, but it’s very real. Budget for movers, cleaning, deposits to set up water, power, internet, etc. These little things add up fast, especially if you’re moving from out of town or buying your first home.
A Quick Word on Payment Types
Most of the big payments—like your earnest money and closing funds—can’t be made with a personal check or credit card. Escrow companies and lenders usually require certified funds, meaning:
Cashier’s checks (from your bank, not just a printed check)
Wire transfers (initiated from your bank, often with fees)
⚠️ Pro tip: Never send a wire transfer without triple-checking the account info directly with your escrow officer. Wire fraud is a real thing, and scammers often target real estate transactions.
Bottom Line: Be Financially Ready for More Than Just the Down Payment
While your down payment might be the biggest piece of the puzzle, these smaller (but essential) out-of-pocket costs add up quickly. Being prepared helps you avoid surprises and feel more in control throughout the process. If you’re unsure what costs apply to your specific situation, don’t hesitate to ask your real estate agent or lender—they’ve helped lots of buyers through this, and they’re there to help you, too. Just as important to know are things to avoid doing once under contract—and how to avoid accidentally blowing up your home loan. Stay tuned for next week!
