Upfront Costs Associated With Buying a Home

When it comes to buying a home, most people are hesitant or scared because of all the costs that come along with owning a home. Honestly, it's no different than renting except for there are more upfront costs associated with buying a home and we're going to explain those in just a few sentences down.

Buying a home will more than likely be one of the biggest purchases in your life and of course it costs quite a bit upfront, but is worth it in the long run. As most of us have learned, real estate is the one gift that keeps on giving as like wine it gets better with time and by better, I mean profitable. Yes, you have to put a lot of money in upfront as an investment but it's the gift that keeps on giving.

Here are some upfront costs associated with buying a home:

1. Down payment which is the cash a buyer has to pay upfront in a real estate transaction and is typically a percentage of the sales price and can range anywhere from 3 - 20% for a property being used as a primary residence.

   
   

   Luckily, there are some down payment assistance programs which will help first time homebuyers pay this towards their home purchase. You can find some of those here or reach out to your realtor and see if they have some down payment assistance programs in your area.

2. Closing costs: A lot of first time home buyers get a little confused when it comes to down payment and closing costs and think they're used interchangeably, but they are two separate entities. Closing costs are the expenses over and above the price of the property that both buyers and sellers incur in order to finalize the closing of the real estate transaction which can include, but are not limited to loan application, underwriting, title search and attorney fees, discount points, prepaid homeowners insurance premiums, etc.

Also Read: Down Payment vs. Closing Costs

In some instances, the seller will pay all the closing costs, but as a buyer you should still be pay these yourself as it is something that's common as an upfront cost to purchasing a property.

3. Earnest money: Money put down before closing on a house to show a seller how serious you are about purchasing. This is also known as a "good faith deposit". Can range from 1 - 3% of the sale price of the property and is held in escrow until the deal is complete.

Also read: What is Earnest Money???

4. Prepaid taxes & insurance: During closing a buyer may be required to pay taxes and insurance in full for the first year. You may not be required to pay costs up front if you put down 20% and decide not to open up an escrow for insurance and taxes.

Of all of these upfront costs associated with buying a home, only three of them are a one time thing when it comes to purchasing a home. You will only have to make a down payment, pay closing cots and make an earnest money deposit at the beginning of the real estate transaction, but as we all know, we can't ever get away with not paying taxes and insurance on just about everything we buy and own so this will be an ongoing expense.

When it comes to buying a home, don't allow these one time large payments in the beginning to deter you. There are always ways to negotiate with getting some assistance with paying for these upfront costs if you need them. As mentioned earlier, there may be down payment assistance programs and/or homebuyer grants that can help with these costs. Also, down payments can also be gifted by family members or friends depending on the type of loan you're qualified and approved for. If you have a great realtor, they can negotiate with the seller to assist with some of the closing costs if not all.

Let's make this year the year you purchase a home.

Happy home buying!

Related article:

Costs Associated with Owning a Home