What Are the Upfront Costs Involved When Buying a Home? | St. Johns Bank
While buying a home can be a great investment, it is also a major purchase—often the biggest purchase a person will make in their lifetime! In many markets, a mortgage is actually cheaper than renting, but there are many more upfront costs associated with buying a home that are important to consider.
Budgeting for buying a home is about a lot more than what you can afford to pay each month and the amount of your down payment, but fortunately, we have a guide to help. Read on for all the information about the upfront costs of buying a home.
What Upfront Costs Should I Budget for When Buying a Home?
The down payment. Perhaps the most obvious upfront cost will be your down payment, and it is also the largest. Historically, a down payment would be 20% of the purchase price of the home, but in most markets that has become an unreasonable expectation for many. Now, people generally put anywhere between 5 and 15% down.
The closing costs. Historically, closing costs were often partially or completely covered by the seller—but now it has become more common for the buyer to absorb these fees to make their offers more competitive to sellers. Typically closing costs are between 2 and 5% of the final cost of the home, and cover things such as loan origination fees, appraisal fees and more.
A home inspection. Getting a home inspection is always a wise move, and it is well worth the peace of mind to know all the potential issues that a home might have. Home inspections are generally between $300 and $800 depending on what is included with the report.
Earnest money deposit. Earnest money is often overlooked because it will be eventually added to your down payment, but you pay the earnest money on acceptance of your offer, so it will be drafted out of your account at a different time. Earnest money is typically 1 to 2% of the purchase price, but oftentimes buyers will choose to volunteer a higher percentage to make their offer stand out.
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