2. Inspection
The buyer is in charge of paying for an inspection of the home. A basic inspection by a qualified individual can range anywhere from $300-$500. There are always additional tests you can have performed (water, radon) that may cost you a bit more.
An inspection is not something you want to skip. Spending a few hundred dollars to avoid making the mistake of buying a home with foundational issues, for example, is worth it. The home purchase will be contingent on the home inspection so if something falls through, you will at least get your earnest money returned to you.
3. Appraisal
The appraisal of the home, determining the home’s true market value, is a cost the buyer is responsible for. This will be about the same as the inspection around $300-$500. The appraisal will determine if the price is right on, too high for the market (the seller will have to lower the price) or is low for the market (you just scored a sweet deal!).
If the seller is not okay with the appraisal results, they can always challenge it or hire another person for a second opinion. You would not be responsible for any of those costs.
4. Down payment
This is the big one. You should have 10% of the cost of the home saved as a down payment, at a minimum. The ideal amount you should have saved is 20% to avoid PMI (private mortgage insurance). PMI protects the lender if you can’t make your mortgage payments. If you don’t put down 20%, every month part of your mortgage payment goes toward PMI and does not go toward your home at all.
There are loan options out there that require 0% down but to be in the best financial situation, work to save the entire 20%.
Example, if you are purchasing a $200,000 house: 10%-20% = $20,000 – $40,000.
Pro tip: Talk to a lender about your financial situation before you start house hunting. Find out how much you could be pre-approved for so you know how much you should start saving as a down payment.
5. Homeowners Insurance
You will need to have insurance on your new home before the bank will allow you to borrow money for it. At the time of closing, you will need to pay the entire annual premium for home insurance.
At some point during your home purchasing venture, your insurance agent will evaluate the property (cost, location, roof, etc.) and get you a price on the insurance premium. This entire amount will need to be covered out-of-pocket. Ours ended up being $750 for our last home purchase. The home before that one, it was $600. It all depends on the type of home you are purchasing.
In addition, a certain percent of your annual insurance premium may be required at the time of closing to put in your escrow account. Find out from your lender, how much that will be.
Pro tip: If your lender will be automatically paying your property taxes and home insurance bills annually, this will be set up with an escrow account. Each month, some of your “mortgage” payment will be put into an escrow account so by the time these annual expenses are due, the amount is already in savings.
6. Closing Costs
What are closing costs? There are so many things included in closing costs, but to explain it in broad terms, it is lender fees and title or attorney fees (notary fee, filing fee, application fee, etc). Sometimes prorated items like property taxes and insurances can be included in this as well.
Really all you need to know is, on average, closing costs can be 2-5% of the home’s total purchase price. So again, if you are buying a home for $200,000, you need to have $4,000 – $10,000 saved for these costs.
7. Additional Costs Associated with Moving
There are always extra costs when you decide to move. From packing materials, the moving truck, food for the day you move, etc. There are lots of costs to take into account when you are moving.
After moving a few times, you will learn what expenses you incur each time (we have moved three times so now we know what to estimate for this). Check out how to prepare your budget for a move to see a complete list of things you may need to consider. If you have planned for these things, there won’t be any surprises on what should be a very happy day…Moving Day!
