Buying a home can be an expensive venture, and there is no doubt that anyone preparing to purchase their first home understands this fact. However, most first time home buyers are not aware of all of the up front costs of buying a home. They know there is a down payment and something called closing costs, but what those costs are and how much they might be are beyond them. In addition, there are other up front costs to buying a home that many first time home buyers are completely unaware of until they get involved in the process. It is important to understand all of the costs associated with this type of investment so you can be prepared and have enough funds on hand to cover all of the expenses.
Of course, the biggest up front cost you will have is your down payment. The down payment is usually a minimum of three to five percent. You can opt to make a larger down payment of ten or twenty percent to get a lower interest rate or better terms. So, if you are buying a home worth $200,000, your down payment will be around ten grand.
The next bit of costs that everyone seems to hear about but barely understand is closing costs. Closing costs are costs associated with getting the loan to buy the house. These fees vary depending on the lender and the terms of your loan. There is really no way to know exactly what fees will be associated with the closing costs until you are involved in the process. All of the closing costs will be disclosed to you before the finalization of the sale. Additionally, closing costs must be paid before the sale is final.
There are a few other fees that you should also be prepared for. You will have to get an appraisal, a home inspection, a credit check, and a title check. All of these services come with a fee. In addition, you have to get insurance on the home prior to the closing of the sale, which means more out of pocket funds.
Altogether, between these fees and the closing costs, the cost of buying a home can add up quickly and catch a new home buyer off guard. It is important to be prepared for all of these costs. To be prepared for closing costs and other fees, you should have about two to four percent of the purchase price of the house for closing costs and other up front costs. So if you are buying that $200,000 home, you will want at least four thousand dollars saved up for the other up front costs of the home purchase.