In a competitive housing market, prepared buyers are most likely to succeed.
The list price might seem like the most important expense in your home search, but many other fees are involved with buying a home. The more familiar you are with the full scope of home-buying costs, the better prepared you’ll be.
Here’s a breakdown of the fees you can expect during your home-buying process, as well as some costs to plan for after you close.
Down payment
The down payment will likely be your biggest expense when buying a home. A standard amount is typically 20% of the home price, but a smaller down payment is possible in some cases.
You may qualify for a loan or grant to help with your down payment. The larger your down payment, the lower your monthly mortgage payment will be, and the better terms you will likely get for your home loan.
Earnest money
Earnest money is a lump sum, usually between 1% to 3% of the sale price, that lets the seller know you’re a serious buyer. So if the home price is $400,000, your earnest money payment will be between $4,000 and $12,000.
That money can go towards your down payment or closing costs when the sale is finalized—make sure to write that into your contract as a contingency. Otherwise, if the deal falls through, you could lose that money.
Closing costs
The administrative fees and taxes, also known as closing costs, can add up when buying a home. Closing costs include inspections, title insurance, appraisal, lender fee, and an origination fee.
Depending on where you live, closing costs will be between 2% and 6% of your loan amount. That means you’ll probably pay between $6,000 and $18,000 if you take out a $300,000 mortgage.
Moving costs
Don’t forget about the cost of moving your belongings to your new home. If you’re not moving far, you could spend less than $2,000, depending on whether you choose to use packing services. If you’re moving far away, the cost could go up to $10,000 or more. Moving.com has a handy moving calculator to help give you a general idea of your moving expenses.
After the sale
Those are the big expenses you can expect when preparing to buy a home. But don’t forget that after you close, in addition to your mortgage payment, you’ll also have insurance payments, a possible homeowners association fee, utilities, and potential upgrades or repairs. You’ll also likely want to set aside some money for new furniture and decorating.
Be sure to factor in all of these expenses when considering how much you can afford to pay for a house. Not every expense is predictable, but get as clear as possible on the full cost of home buying so you can come up with an accurate idea of how much house you can afford. The more prepared you are, the more likely you’ll land the home of your dreams.
Sources: RocketMortgage, The Mortgage Reports
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