Buyer Tips: The costs first-time buyers in North Carolina don't see coming

Buying a home, especially for the first time, involves more than just the purchase price. In North Carolina, there are specific costs and practices that are important to understand. While you will plan for your down payment and monthly mortgage, other expenses arise during the buying process itself. Knowing about these early can help you budget effectively and avoid surprises.

Understanding Your Initial Investment

When you make an offer on a home in North Carolina, you typically propose two distinct payments: the due diligence fee and earnest money. Both are paid by you as the buyer and are part of your commitment to purchase the home.

The due diligence fee is a non-refundable amount paid directly to the seller upon agreement of the contract. This fee compensates the seller for taking their home off the market while you complete your inspections and other investigations. The size of this fee can vary significantly based on market conditions and the home's value. It is not held in escrow. If the sale closes, this fee is credited back to you at closing, reducing the total amount you owe. However, if you decide not to proceed with the purchase for any reason after the contract is signed, the seller keeps the due diligence fee. This fee secures your right to investigate the property during the due diligence period.

Earnest money is different. It is a good faith deposit, typically held in an escrow account by the seller's brokerage or a closing attorney. Like the due diligence fee, earnest money is also credited back to you at closing. If the sale does not close due to a reason allowed by the contract, such as the seller backing out without cause, the earnest money is typically returned to you. However, if you terminate the contract after the due diligence period has ended, you may forfeit both the due diligence fee and the earnest money. Your broker can explain the specific conditions under which earnest money is refundable or non-refundable.

The Due Diligence Period: Your Time to Investigate

The due diligence period is a negotiated timeframe, starting from the day the contract is executed. This is your opportunity to thoroughly investigate the property and decide if you want to proceed with the purchase. It is a critical window for you to perform all necessary inspections, review documents, and secure your financing. It's during this time that you might uncover issues that lead you to renegotiate the purchase price or repairs, or even decide to terminate the contract. For a deeper dive into this important phase, you can explore Buyer Tips: What the due diligence period really means for a buyer.

During this period, you will typically arrange for several inspections. A general home inspection is common, covering major systems like the roof, foundation, HVAC, electrical, and plumbing. Depending on the property and its location, you might also consider a radon test, a well inspection, a septic inspection, or a pest inspection. These inspections are paid for by you, the buyer, and are an out-of-pocket expense. The costs for these can range from a few hundred dollars to over a thousand, depending on the number and type of inspections you choose. While these costs add up, they provide valuable information about the home's condition and can save you from significant expenses down the road.

Understanding Loan-Related Expenses

If you are financing your home purchase, your lender will require an appraisal. An appraisal is an independent valuation of the property to ensure that its market value supports the loan amount. The appraiser is an objective third party hired by your lender, and you, as the buyer, usually pay for this service. The cost of an appraisal typically ranges from a few hundred dollars. If the appraisal comes in lower than the agreed-upon purchase price, it can impact your loan terms or require renegotiation with the seller.

Beyond the appraisal, your lender will also charge various fees for originating and processing your loan. These are often referred to as lender fees or closing costs. They can include application fees, credit report fees, underwriting fees, and potentially discount points if you choose to "buy down" your interest rate. Your lender will provide you with a Loan Estimate detailing all these costs shortly after you apply for a mortgage.

Closing Costs Beyond the Loan

On top of the due diligence fee, earnest money, inspections, and lender fees, you will encounter other closing costs. These are the expenses due at the time of settlement, separate from your down payment.

One significant closing cost in North Carolina involves the closing attorney. In North Carolina, real estate transactions must be overseen by a licensed attorney. The closing attorney prepares all the necessary legal documents, conducts a title search, facilitates the transfer of funds, and ensures that the title to the property is clear and marketable. You, as the buyer, typically select and pay for the closing attorney's services. Their fees cover these legal services and can range from several hundred to over a thousand dollars.

Other common closing costs include:

• Title insurance: This protects you and your lender from future claims against the property's title. You typically pay for the lender's title insurance, and you may choose to purchase an owner's title insurance policy for yourself.
• Recording fees: These are fees paid to the county to record the deed and mortgage documents.
• Prepaid expenses: These often include pro-rated property taxes and homeowner's insurance premiums, which you pay in advance at closing. Lenders usually require you to set up an escrow account for these ongoing costs.
• Survey fees: If required by your lender or desired for your peace of mind, a land survey confirms property lines and easements.

All these closing costs will be detailed on your Closing Disclosure, which your lender will provide a few days before your closing date. This document will give you a final breakdown of all expenses. You can also use a mortgage calculator to get an estimate of your monthly payments, but remember that closing costs are a separate, one-time expense.

Your Next Step

Understanding these potential costs is an important part of preparing to buy your first home. A local real estate broker can help guide you through each stage of the process, explain the nuances of North Carolina contracts, and connect you with trusted professionals for inspections and legal services.

When you are ready to begin your home search or have more questions about the buying process, we invite you to talk to a True North broker. We are here to help you navigate the journey.