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8 Essential Upfront Costs Every Homebuyer Should Prepare For

Finance October 18, 2024

When purchasing a home, it’s imperative to be aware of the upfront expenses that come with it. Understanding these costs can help you budget effectively and avoid surprises along the way. Let’s explore the key upfront expenses you need to be prepared for when buying a home.

1. Earnest Money Deposit

An earnest money deposit, typically 3% of the home’s sales price, shows the seller you’re serious about your offer. While this deposit goes towards your down payment or closing costs, it’s still an upfront expense that buyers should account for that’s immediately deposited after their offer is accepted.

2. Home Inspection Fees

Home inspections are key to ensure your potential new home doesn’t have hidden issues. On average, inspections can range from $500-$1,000+ depending on the type of inspections you wish to pursue. Home, pest, foundation, and roof inspections are examples of an array of investigations buyers can explore. The home’s size and location are contributing factors to how these inspections are estimated. This expense is necessary to protect your investment, ensuring you’re making an informed decision on your purchase.

3. Appraisal Costs

All lenders typically require an appraisal to determine the home’s market value. This upfront cost, can range between $700-$1000+, ensures the home is worth the loan amount they are willing to lend you. It’s essential for you to work with a reliable lender to confirm you’re not overpaying for the property and has your financial best interest in mind. Check out our appraisal blog to learn more about the process. 

4. Closing Costs

Closing costs are expenses over and above the interest rate on a mortgage loan. They’re unavoidable, covering various fees such as application fees, loan origination fees, and points to mention a few. Buyers should expect to pay between 2% to 5% of the home’s sales price in closing costs. These are due when the property officially transfers ownership from the seller to the buyer. 

5. Buyer’s Agent Commission

With the recent National Association of REALTORS® (NAR) settlement effective August 17, 2024, buyers are now responsible for their broker’s commission, which was traditionally covered by the seller. This fee is typically 2.5% to 3% of the home’s sales price, adding a new upfront expense for buyers to plan for. It’s essential to budget for this cost, as it may directly impact your buying power and overall affordability. Depending on market conditions, this expense can still be negotiated with sellers as a buyer credit or through other creative negotiation avenues to compensate the buyer’s broker.  Call 360 Real Estate Pros so we can help you reach your homeownership goals. 

6. Down Payment

The down payment is often the largest upfront cost for buyers. Depending on the loan type and your financial situation, down payments can range from as little as 3% to 20% of the sales price. Having this amount ready is essential when planning your home purchase. Contact one of our preferred lenders to help you get started by structuring a plan towards homeownership. 

7. Prepaid Homeowners Insurance

Lenders typically require buyers to prepay a year’s worth of homeowners insurance at closing. Costs vary based on the home’s location, size, and coverage options, but it’s an essential upfront expense that protects your new investment from the start.

8. Property Taxes

Depending on the time of year you close, you may be required to pay a portion of the property taxes upfront. Lenders often include this in your closing costs, ensuring that taxes are current when you take ownership of the property.

Final Thoughts

Being financially prepared for these upfront costs is key to a smooth home buying process. Planning ahead ensures there are no surprises and helps make your transition into homeownership seamless.
 
Contact 360 Real Estate Pros today, and let us simplify the real estate process and amplify your real estate experience!


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