Buying a home is a big financial decision, and it’s important to be aware of all the costs involved. In addition to the down payment and monthly mortgage payments, there are a number of other expenses that buyers need to factor into their budget.
Expenses Before Closing
Common buyer expenses before closing include:
- Earnest Money: Earnest money is an upfront payment a buyer puts down at the time of having a binding real estate contract. Typically 1% of the purchase price, earnest money shows the seller that the buyer is making a good-faith effort to purchase the property. Earnest money is applied towards the purchase price on behalf of the buyer at the time of closing.
- Appraisal fee: An appraisal fee is charged by a licensed appraiser to determine the value of the home you’re buying. The amount of the fee varies depending on the size and location of the home, but it typically ranges from $500 to $800.
- Home inspection fee: The inspection fee is charged by a home inspector to assess the condition of the home you’re buying. The amount of the fee varies depending on the size and age of the home, but it typically ranges from $500 to $900.
Expenses Due At Closing
Commonly referred to as Closing Costs, these are buyer expenses paid for on closing day:
- Closing costs: Closing costs are the fees associated with finalizing the purchase of your home. They typically range from 2-5% of the purchase price of the home if you get a mortgage, and less if you pay cash.
- Title insurance: Title insurance protects you against any title defects that may be discovered after you purchase the home. The cost of title insurance is typically around 1% of the purchase price of the home.
- Recording fees: These fees are charged by the county clerk to record the deed to your new home. The amount of the fee varies depending on the county, but it is typically around $100.
- Prepaid interest: This is the interest that you will owe on your mortgage for the first partial month of ownership. Mortgage payments are paid in arrears, so you do not make a full payment until after you have lived in the home for a full month.
- Property taxes: Property taxes are due annually and are based on the assessed value of your home. The amount of property taxes varies depending on the location of your home, but it is typically around 1% of the purchase price. Taxes are prorated between the buyer and seller, based on the number of days each person owns the home.
- Homeowners insurance: Homeowners insurance protects your home from damage caused by fire, theft, and other perils. The cost of homeowners insurance varies depending on the size and value of your home, as well as the location of your home.
Expenses After Closing
Common buyer expenses after purchasing a home include:
- Moving expenses: These expenses can include the cost of hiring a moving company, packing supplies, and storage fees.
- Home improvement costs: You may need to make some home improvements after you move in. These costs can vary depending on the condition of your home and the improvements you want to make.
It’s important to factor all of these costs into your budget when you’re planning to buy a home. By doing so, you can avoid financial surprises down the road.
Here are some tips for reducing your buyer expenses:
- Shop around for a lender: Get quotes from multiple lenders to get the best interest rate and fees.
- Get a home inspection: A home inspection can help you identify any potential problems with the home before you buy it.
- Negotiate with the seller: You may be able to negotiate with the seller to pay for some or all of your closing costs.
By following these tips, you can reduce your buyer expenses and make the home buying process a little bit easier. While this article covers anticipated costs to buy, becoming a homeowner is priceless, and a great opportunity to build wealth over time!