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The True Costs when Buying a House and How to Save Money

what the cost of buying a house
The costs when buying a house

In an online survey where homebuyers are asked what they’d like to know before buying a house, most people said they’d like to know the true costs when buying a house.

Today we’ll walk you through the costs of buying a house, where to save closing costs on a house, and how to “make money” in the process.

Most homebuyers are shocked when they first see all the expenses incurred when buying a house.

Among those items, everyone knows about the down payment. Generally speaking, homebuyers need to pay at least 3% to 3.5% of the house’s total price as a down payment. For example, if you want to buy a house worth $300,000, the minimum down payment would be $9,000.

On top of the down payment, there are many other costs associated with buying a house and getting a home loan.

Costs related to home buying

1. Earnest money deposit and down payment (1% to 3% of the home price)

When signing the contract to buy a house, the buyers will be asked to write a deposit check as earnest money, which will be put under the custody of a third-party escrow.

The earnest money deposit is generally around 1% to 3% of the home price. For example, for a house worth $500,000, the earnest money deposit is about $5,000 to $15,000. If there is fierce competition for the property, however, the buyer might put down more earnest money deposit to show that they’re serious about buying.

The earnest money deposit needs to be paid before the closing/settlement. During the house closing process, the third-party escrow will return the deposit as part of the down payment.

The down payment needs to be at least 3% to 3.5% of the house value, but many people choose to put a 20% down payment to avoid the costs of mortgage insurance. The down payment is paid on closing day.

2. Home Inspection fees ($300 to $1,000)

After signing the contract, the first thing homebuyers need to do––except for mortgage application––is to conduct a home inspection on the house. The cost of a home inspection depends on the size of the house, but generally ranges from $300 to $800.

If the house has a basement, the buyer might want to do a radon test, which could cost another $150 to $300. A termite inspection could cost $60 to $100, but the buyer can ask the seller to pay for it.

These are just the basic home inspection items. Some houses might have special circumstances that need to be addressed. For example, if you suspect a house has foundation problems, you’ll need to do a foundation inspection. There are also special inspections for wells, septic tanks, asbestos, mold, and so on. Depending on the region, each item can cost hundreds of dollars.

The home inspection cost is paid at the time of the inspection.

3. Title company fees

There are numerous types of fees charged by the title company, such as title investigation and title insurance. If you are buying a house with a mortgage, it is required to purchase a lender’s title insurance that protects the mortgage lender. This usually costs a few thousand dollars, depending on the housing price.

A homebuyer can also purchase a home owner’s title insurance to protect themselves. If there are problems with the title, the title insurance would cover some losses. The homeowner’s title insurance is not required, but most people choose to buy it just to feel at ease during the transaction.

If you are in a state that requires a lawyer for the settlement, you also need to pay a few hundred dollars in lawyer fees.

Remember to shop around and compare the title company fees from different title companies. This is where you can save some money when buying a house.

Have you checked out different title companies’ settlement fees when buying a house? What is the biggest price gap that you’ve seen? Please leave a comment below.

4. Government fees

Government fees include recording tax, transfer fees, and more. Depending on where the house is located, the charges in different counties can also be different. Generally speaking, government fees cost a few thousandth to a few percent of the home price. Some cities charge an extra transfer fee.

Some of the fees are paid by the seller, and others by the buyer. Every city has its own rules. Homebuyers should ask their real estate agent for more details about local government fees.

Costs related to mortgage

1. Mortgage origination fee

Mortgage companies usually charge many different fees related to the issuance of a mortgage, such as the application fee and underwriting fee. Generally speaking, they’d cost more than $1,000.

If you want to borrow money at lower interest rates, you could also pay some extra money to buy the so-called “points”. One point is 1% of the mortgage amount.

The mortgage origination fees can be very different depending on the lender, so remember to shop around. Some banks might charge 1% of the mortgage amount, while some mortgage companies might waive the fees completely.

2. Third-party fees related to mortgage

The third-party fees usually include an appraisal, which generally costs $500, as well as a credit-score check and flood certification, each costing about $20 to $50.

3. Deposit in an escrow account

Generally speaking, homebuyers are required to deposit a few thousand dollars into an escrow account, which will be used to pay house insurance, taxes, mortgage insurance, and other costs.

4. Prepaids

The prepaid expenses include the first year’s housing insurance, mortgage interest from the closing day to the end of the first month, as well as real estate tax owed by the new owner. Shop around when choosing home insurance, this is where you can save some money.

Above are some of the most basic costs when buying a house and getting a mortgage. Some states might have other special fees.

How to make money and subsidize the closing cost

Despite the high closing costs when buying a house, there are a few ways to save money and even make some money to subsidize the closing cost.

1. Subsidies from the seller (Seller credit)

In order to sell the house as soon as possible, some sellers might take the initiative to help the buyer pay the closing cost. While this might sound impossible in today’s hot housing market, it was very common in the past, especially during the financial crises.

When submitting an offer, the buyer can also propose to bid higher, but ask the seller to return the extra money as seller credit. For example, if the home price is $500,000, the buyer can make an offer of $505,000 and ask the seller to return the extra $5,000 as seller credit. This way, although the buyers’ mortgage amount has increased, they’ll have more cash at hand now to pay the closing cost.

Another way to get seller credit is through a home inspection. If the buyers find any problem with the house during the home inspection, they can ask the seller to directly compensate them through cash instead of making repairs.

2. Mortgage rebates (lender credit)

When getting a mortgage, you can choose to have lower or higher interest rates. You can pay the mortgage company extra money in exchange for a lower interest rate; or choose a higher interest rate in exchange of cash rebates/credit. The cash rebates can be used to pay the closing.

3. Cashback from the real estate agent

If your real estate agent is willing to offer some cashback, usually the money is transferred at closing. So you can use the money to pay the closing cost. This way, the cashback won’t count as the agent’s taxable income.

4. Ask the seller or the listing agent for a one-year home warranty on the house

The one-year warranty costs about several hundred dollars. In places where the housing market is not that hot, it is very common for the seller or their listing agent to give the buyer a one-year home warranty on the house.

It’s worth noting that there is a maximum limit on the subsidies provided by the mortgage company and seller. Depending on the mortgage type and down payment, this limit can be between 2% to 9%. For example, if the home price is $300,000 and the maximum limit is 6%, the buyer can get no more than $18,000 in subsidies. If the total subsidies from different parties exceed the limit, the buyer won’t be able to receive the extra money.


The closing cost when buying a house can add up to tens of thousands of dollars. Depending on where you plan to buy a house, you should set aside at least $10,000 to $30,000 in a deposit account.

It’s always better to have more cash on the side, because you might need money for many unexpected items. For example, you might want to increase the offer price to bid for a house that you really want, or the mortgage companies might require you to have a certain amount of reserves.

There are a few items where the homebuyer can potentially save money. Since the buyer can freely choose where to get the transfer service, property insurance, and mortgage, one should shop around, compare the charges, and pick the most cost-effective companies to work with. There are also a few ways that the home buyer can even get some money back, such as seller subsidies, mortgage rebates, and cashback from the buyer’s agent.

Buying a house can be very expensive. I hope everyone can use the tips mentioned above to cut the cost and purchase their dream house.

If you are purchasing a house and want to save money on your mortgage, our website can help you compare mortgage interest rates, find the lowest interest rate, and match you with a lender who can provide you with a mortgage that suits your need.


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