How to Prepare for the Up-Front Costs of Buying a Home
Be Prepared When Buying a Home
Despite being an exciting and rewarding purchase, buying a home comes with its fair share of up-front costs. Buyers need to prepare themselves to pay for more than just the price tag of their dream home. You need to know your financial situation and how much money you will need to complete the home buying process. Let’s take a look at the included costs of buying a home.
Many homebuyers focus their energy on saving for a down payment, but it is not the only expense to budget for. Closing costs are a key part of closing a home deal and can be between 2% to 5% of the purchase price. HomeHunt has put together a list of different fees that make up closing costs and what to budget for before buying a home:
Closing Disclosure: Before the closing date, your lender will send you a Closing Disclosure, which is a five-page document that provides the final details about the mortgage loan. This disclosure will state the loan terms, projected monthly payments, fees, and other loan costs, including the closing costs.
Origination Charges: The origination fee covers processing the application, underwriting, funding the loan, and administration services. These fees normally range from 0.5% to 1% of the borrower’s mortgage. These charges can be higher for smaller loans because the fixed costs are a higher percentage.
Service Charges: These are charges associated with the home appraisal, credit report, flood determination and certificate, tax status, pest inspection, title search, and insurance fees. Most homes and mortgage companies will require the new home to be appraised by the potential buyer. It can cost between $300 and $500 to determine the value of the home. Your lender will offer a loan based on the value in which the home is appraised.
Taxes: Transfer taxes and government fees can add up when purchasing a home. Transfer taxes apply when the title of the property changes to the new owner. Transfer taxes vary by state and are paid directly to the government.
Escrow Payments: These fees include homeowners insurance, property taxes, and primary mortgage insurance. These payments are one-time charges that are paid when the real estate transaction is complete.
Other Up-Front Costs
Down Payment: This is typically 5% to 20% of the purchase price of your home, but will mostly depend on the type of mortgage you choose.
Earnest Money Deposit: This is a sum of money you submit with your offer to show the seller that you are serious about purchasing the home. It is also known as a “good faith deposit.” During closing, the amount you pay in earnest can go toward your down payment or closing costs.
Home Inspection: Buyers are responsible for paying for the home inspection. An inspection will tell you about the home and any potential maintenance issues you should be aware of.
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