If you’re considering buying a home, you know how important it is to know what kind of house you can actually afford before you get started. What you might not know is that there’s a lot more to your upfront costs beyond just the down payment. Don’t let yourself get caught off guard! Here are some of the most common upfront costs that take home buyers by surprise:
Earnest Money Deposit
An earnest money deposit is required in order to create a contract between you and the seller, once they have accepted your offer. The earnest money deposit is designed to show the seller that you are committed to seeing the deal through. You should expect an earnest money deposit being between 1-2% of the asking price; sometimes more.
Your earnest money goes into an escrow account set up by a third-party (often a title or escrow company). The earnest money is applied toward your down payment.
Once your offer has been accepted, you’ll want to hire a certified home inspector to make sure there won’t be any surprises after closing. You should expect to pay between $300 and $600 for a home inspection. Keep in mind that this is nonrefundable if a deal falls through.
Inspectors will look for issues with the structure and inner workings of your home and provide you a comprehensive report with everything they find. You’ll then be able to go back to the seller and come up with repair terms before you finalize the deal.
A home appraisal is a way for the mortgage lender to make sure they are getting the best deal with the loan they are about to issue you. Appraisal fees vary, but you should expect to pay somewhere between $350 to $600.
The lender will hire a certified appraiser to assess the property value of your potential new home. The appraiser will consider features that make a home valuable, such as a deck, as well as the prices of comparable homes sold recently in the area. This will help the appraiser to determine the value of the home.
Many mortgage lenders will require that you purchase homeowner’s insurance before they agree to process your application for a loan. Homeowner’s Insurance is incredibly important to protect you against anything from break-ins, to fires, to natural disasters. Most plans allow you to either pay your premium once a year or to make monthly payments.
Closing CostsClosing costs are often the biggest surprise to home buyers. Closing costs are unique to each individual home purchase but usually include things like loan fees and attorney fees to homeowners’ association fees and taxes. You should plan on having an additional 2% to 5% of the home purchase price to cover all of these costs
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