Let's talk about money, honey. 

Last week I explained the joys of house hunting and ended on a rather positive note: making an offer. Today I'm breaking down some up-front costs. 

Everyone knows buying a house is a big transaction, but we had no clue how much money would be leaving our bank account before we could even call the house ours. There's a shortlist of checks to write before the down payment happens, most of which are non-refundable if the deal falls through, and much of which is handed over during the due diligence period.

Step Three - The Offer is In, Now What?

Due Diligence?
This is a short window of time (typically between 3-10 days), after going under contract, during which the buyer does all the things necessary to make sure he/she still wants to commit to buying the house.

Earnest Money (~$1K)
This was the first check we wrote. Earnest money is a deposit to the seller, paid through your real estate agent, as "proof" you're committed to this major purchase. I believe the standard amount varies from state to state, but in Georgia, anywhere from $500 to $2K is recommended for houses under $500K. This money ultimately goes toward your down payment at closing, so if your down payment on a $200,000 house is $40,000, then you can give $2,000 in  Earnest Money up front, and pay the remaining remaining $38,000 at closing.

We kept our Earnest Money at $1,000 and wrote the check with our offer on the house. After a bit of back and forth with the seller (not a fun process at all. AT. ALL.), we negotiated a price and set of terms that satisfied both parties (buyer & seller). Then the contract was drawn up and signed. The following day, our due diligence period began. A few days later, that $1,000 cleared our bank account.

*Note: With an FHA Loan, Earnest Money is typically only refundable if the contract is terminated during the due diligence period.

Home Inspection (~$400)
The first thing we did during our due diligence period was schedule a home inspection. As I mentioned, this was the time to have every part of the house checked for any issues. A general inspection covers most major bases: foundation, roof, chimney (if applicable), plumbing, etc. We chose a certified inspector trusted by our real estate team, and he was extremely thorough. Every house has its own set of issues, and while some are more important than others, it's still imperative to have all problems called out and laid in front of you. It's against the law for sellers to conceal any faults, but in case some details are "mistakenly" omitted from the seller's disclosure, a home inspection should catch it.

That being said, a general home inspection doesn't cover everything. If you want the house inspected for mold, radon, asbestos, lead paint, and/or termites, that will cost extra. That might even call for a separate inspection. Since inspection fees are paid before or on the day of the inspection, those costs can quickly add up.

A few pest control companies around Atlanta offer free termite inspections, so we scheduled one for the day after our general inspection. Thankfully there were no deal breakers uncovered. Our biggest issue was the fact that the house needed a new roof soon. (It wasn't deteriorating, and there were no leaks, but it's old and probably only has a few good years left.)

We reviewed the inspection report with our real estate agent and took some time to talk about whether we wanted to bother with having to replace a roof or would we rather back out and look for something else. If we backed out, we'd be able to get our Earnest Money back, but the inspection costs are non-refundable (such is the standard nationwide). So not only would we be back at square one, we'd have to pay another $400 for another inspection on another place once we went under contract somewhere else. We decided it was best to move forward and planned to invest in a new roof later on down the line.

That's all for today, but that's not all for the up-front costs. Next week I'll break down appraisals... in all their unfortunate glory.

Part One Here
Part Two Here