10 Costs of Buying a Home You Need to Budget For

costs of buying a home

You’ve been saving up for a down payment on that home you’ve been dreaming about.

But not so fast!.

There are other costs of buying a home you may not have thought about or budgeted for.

This article covers all of the costs you need to budget for when buying a house.

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1. Earnest Money

Most sellers will require an earnest money deposit to show good faith that you’re serious about completing the sale. Usually, that amount is between half a percent and a full percentage point of the total purchase price.

For example: If the seller accepts your offer of $300,000, the typical earnest money required is between $1,500 to $3,000.

This deposit is non-refundable. If you’re unable to close on the home for any reason, the buyer keeps the earnest deposit.

2. Down Payment

Buyers need to determine which type of home loan they will need. If they’re buying a home eligible for an FHA loan, they only need 3.5% for a down payment.

Unfortunately, the FHA has low loan limits, so you will have to get a conventional mortgage if you don’t qualify. Most conventional loans require between 5%-20% of the purchase price as a down payment.

The Government has several other types of mortgage programs available that offer low-to-no down payment, such as USDA and VA loans. The ReadyBuyer Program by Fannie Mae is available to first-time buyers with just a 3% down payment.

3. Property Taxes

Property taxes are one of the highest costs of homeownership outside the mortgage payment. In some states and counties, the property tax rate can be over 2% of the home’s value.

Your mortgage company maintains an escrow account that a portion of your payment goes into so the lender can pay your property taxes each year.

Use our mortgage calculator to see how much house you can afford, including property taxes.

4. Mortgage Insurance Premiums

If you’re getting a Government loan such as an FHA or USDA loan, then you’ll be paying an FHA mortgage insurance premium as high as 1% of the loan amount each year. Conventional loans require private mortgage insurance you put less than 20% down.

PMI is factored into your monthly mortgage payment. Make sure you use a calculator that shows you how much house you can afford, including PMI.

5. Home Appraisal

​All mortgage companies will require a home appraisal before issuing the loan. An appraisal determines the fair market price of a property. Lenders use this to confirm they are not lending more money than a home is worth.

The average appraisal cost is $300-$600, and it will be paid up-front before closing. The appraisal fee is non-refundable, even if the transaction is not completed.

6. Homeowners Insurance

Homeowners insurance insures the property against any damages. Every mortgage requires the borrower to carry homeowner’s insurance. Often this cost is included in your escrow account with the mortgage lender. A portion of the annual cost is taken out of your payment each month and paid to the insurance company yearly.

​You should compare home insurance quotes from at least 3 different insurance companies to make sure you’re getting the best deal. The average annual fee for homeowner’s insurance is $1,525.​

7. Closing Costs

​Closing costs are fees charged by lenders that include a loan application fee, credit report, and loan origination fee. The average closing costs are typically between 2%-4% of the loan amount and vary based on the lender and borrower.

You should get at least 3-4 loan quotes from mortgage lenders to make sure you’re paying a fair amount.

Fees can also be negotiated with the lender; use loan quotes from other lenders to help you negotiate the best deal.

The seller can pay up to 6% of closing costs on an FHA loan. And up to 3% on a conventional loan. Your real estate agent should negotiate seller paid closing costs into the contract.​

Fees Included in Closing Costs

  • Loan Origination Fee 
    The fee to compensate the lender for processing the loan
  • Discount points
    Pre-paid interest that will reduce your interest rate
  • Appraisal Fee
    The fee paid to home appraisal before closing
  • Credit report
    Fee for pulling your credit report
  • Tax service
    Title delivery and escrow fees
  • Title insurance 
  • Insurance that covers any legal damages in the event a seller cannot legally transfer the title. This policy protects the borrower and the mortgage lender.
  • Attorney witness for the closing
    Fee the attorney charges for witnessing the transaction at the title company.
  • Underwriting fee
  • Fee lenders charge for underwriting
  • Survey
    The fee charged to measure boundaries of the property.

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8. Moving Expenses

Moving expenses will depend on several factors. Is it a one or two-story home? How much stuff do you have? The number of rooms? How far are you moving to? I would say to budget about $1500 for moving expenses.

Like with any service, you should get quotes from several different moving companies to ensure you get the best rate.

9. Utilities

Unless you have good credit, you may have to pay a deposit for the Utilities will depend on many factors, such as energy-efficient appliances and windows and insulation. There may be fees for setting up or transferring cable and internet services. If you’re moving to a bigger place, your utility costs will be much higher than before.

You may want to also set up a home monitoring system in your new home; some homes come pre-wired with the equipment but will require a setup fee.

Various Utility Fees

  • Gas
  • Electric
  • Cable and Internet
  • Home Phone
  • Home Monitoring System
  • Water

10. New Furniture

​If you’re moving to a larger space, you should keep in mind that you will need more furniture, wall art, curtains, etc. Decor that will well in your old space not work as well in your new home.

Unless you’re okay with what you have and don’t mind your new bigger space feeling a bit empty, you need to budget accordingly.

The Final Word…

As you now know, there are many costs of buying a home you may not have considered before.
Between mortgage insurance, the home appraisal, the cost of moving, and increases in utility costs can make buying a home more costly than you imagined.
Before taking the plunge into homeownership, make sure you budget for these costs and are certain you can afford it.
So are you ready to become a homeowner?