When Do I Pay Out-Of-Pocket Costs?

Sammamish Mortgage
Post Date: February 10, 2021Updated: August 28, 2021

There are a lot of costs associated with buying a home! Find out when you need to be ready to cough up cash, and when costs will be paid out of a funded account. Typically, out-of-pocket costs are split into several main due dates, with one being payment into an escrow account to handle a bunch of smaller costs as they occur.

Earnest Money: Due On Offer Acceptance

As soon as the seller accepts your offer, you’ll need to deposit earnest money into an escrow account. This typically needs to happen within three business days of signing. The money can be wired directly to an escrow account (recommended), or a cashier’s check can be delivered to the seller’s agent for deposit.

Earnest money protects the seller in case you walk away from the deal with no good reason halfway through. If you default, they get the money. If they don’t meet set terms, you get the money back. Your Realtor will also put contingencies into your offer which will allow you to get your earnest money back if problems arise during the transaction. Common examples include issues with the home found during the inspection or problems with loan approval.

Earnest money can range from a few hundred dollars to 1.5% of the home’s sales price or even more. In a competitive market, the seller may feel they can demand a higher amount of earnest money to accept your offer.

Prepaid Items: Due On Offer Acceptance

Other than the earnest money the only other items generally paid prior to the end of the transaction is the home inspection and the home appraisal. Both of these fees are paid once completed whether or not the purchase closes.

Assuming everything goes smoothly, and the home purchase is completed, any remaining funds would be paid to the escrow company shortly before closing.

The escrow company holds these funds, and pays out the various parties as authorized during the home sale contract. The remainder is released when all parties have fulfilled obligations under the contract.

Closing Costs: Due At Closing

Closing costs can range between 2% and 4% of your purchase price, depending on how your loan is structured and the size of your down payment. You can negotiate the seller to pay some or all of these costs.

You’ll need to either bring a cashier’s check to closing, or (in cases of digital closing) wire any funds not covered by the existing escrow. You’ll get a detailed list of closing costs three days before you close as part of the closing disclosure.

Down Payment: Due At Closing

Your down payment will typically be wired along with the closing costs mentioned above. Make sure your bank is aware and ready to make the transfer to avoid delays. If there is any money in escrow not allocated to other costs, it can be used as part of your down payment.

Your loan officer can help you navigate these steps and ensure payments are made on time to appropriate parties. If you are concerned about out-of-pocket costs, bring this up early in the process so you can work on a solution that allows you to complete your purchase.

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