There's more expense to buying a home than the purchase price. When you're ready to make an offer on just the right property, make sure you have enough cash in reserve for these 10 common costs associated with the transaction.
1. Earnest money
To prove you're "earnest" in your purchase commitment, expect to put down up to 10% of the total purchase price as an earnest money deposit. This amount is negotiable, but in general, the higher the earnest money deposit, the better the offer in the eyes of the seller. In Vermont, the buyer establishes "an equitable interest" in the property with a ten percent contract deposit. If the seller breaches the contract for whatever reason and the buyer has an equitable interest, he can sue not only for damages, but also for "specific performance," effectively forcing the seller to sell at the price and terms agreed upon.
Assuming that all goes well and your offer is accepted by the seller, the earnest money will go toward the down payment and/or closing costs. In most circumstances, you get your deposit back if you discover something that you don't like about the home and decide not to go forward with the purchase.
2. Escrow account
An escrow account is basically a way for your mortgage company to make sure you have enough money to cover property taxes and mortgage insurance. The amount you need to pay varies by location, lender, and loan type. It could cover costs for a few months to a year. Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but not required for VA loans.
The origination fee is the price you pay the loan officer or broker for completing the loan, and it includes underwriting, originating, and processing costs. The origination fee is a percentage of the total loan. A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.
You want to be assured your new home is structurally sound and free of surprises such as leaks or pests living in the walls. Those assurances come with a price.
- Home inspection: This is critical for home buyers. A good inspector will be able to notify you of structural problems, flooding issues, and other potentially serious problems. Expect to pay $750 for a home inspection, although cost vary.
- Radon inspection: An EPA-recommended step, this inspection will determine whether your prospective home has elevated levels of the cancer-causing agent radon. A professional radon inspection can cost several hundred dollars.
- Pest inspections: Termites are uncommon in Vermont and termite inspections are rare. The most common pests are mice and cluster flies, which can be managed in a variety of affordable ways.
Vermont requires an attorney or title company to be present at closing. The attorney or title company will make sure the property's title is free and clear. In most cases, both the buyer and seller will have their own attorneys. The fees vary depending on the complexity of the transaction, but you should expect to pay at least $750 for settlement services. If you are financing the purchase, the bank or mortgage company may have a lawyer on their end, and they should cover the bill, but keep in mind, this attorney represents the bank's interests, not yours.
6. Credit check
Just because you can get your credit report for free doesn't mean your lender can (and it will actually pull all three). You have to reimburse the lender, usually around $30.
7. Extra insurance
If you live in a hazard-prone area, you might need to purchase extra insurance, like flood insurance.
Your lender won't loan you money for a home without knowing what its fair market value is. An appraisal will generally cost between $350 to $550, depending on location and property size.
A survey is not required to convey property in Vermont. If you use a lender from a state where surveys are required, it could cause your loan to be denied. A professional survey could cost upwards of $1,000 if no existing survey is on file. This is just one of many reasons it can be to your advantage to use a local lender if you're financing your purchase.
10. Transfer Tax
This can be a big expense, so take note. If you are buying a home in Vermont as your primary residence, you will pay the state a transfer tax in the amount of 0.05% of the purchase price of the property. If the property is not going to serve as your primary residence, the transfer tax will be 1.25% of the purchase price.