Up-Front Costs for Homebuyers

Dated: 07/11/2019

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People often ask us what up-front costs homebuyers encounter when purchasing a home.  Here is a list of five items for buyers to remember:


·         Earnest Money Deposit – First a buyer makes an offer to the home seller.  When the buyer and seller come to an agreement, the buyer is typically expected to put down 1 to 3 percent of the purchase price immediately as a deposit.  This earnest money deposit becomes part of the down payment at the closing, when all the papers are signed.  Buyers need to be aware that if they change their mind and back out of the deal, the seller can keep the money.  However, if the deal falls through for other reasons, such as a contingency that was agreed upon (for example, if the home inspection shows major flaws), then the buyer gets his money back.  Here is an example of a typical earnest money deposit:  if the home purchase price is $500,000, the earnest money deposit would be between $5,000 and $15,000 (1% to 3%).


·         Home Inspection – It is wise to spend $300 to $600 for a thorough inspection of the home to reveal any unexpected flaws.  Often the seller will fix these defects before closing, or reduce his price to allow the buyer to fix them later.  Buyers do not want expensive surprises after taking ownership of the home.


·         Down Payment – Down payment amounts vary.  An FHA-backed loan can be 3.5% of the purchase price.  Otherwise the down payment can go as high as 20 percent.  For the $500,000 home, the down payment could be $17,500 (3.5%), and up to $100,000 (20%).  If a buyer puts down more than 20%, he can reduce the amount of his mortgage, which means lower mortgage payments and likely a lower interest rate.


·         Closing Costs -- Closing costs generally range from 2 to 5 percent of the purchase price.  Items on the closing sheet include title insurance, loan-processing costs, taxes, and various other fees. Some of these costs are negotiable.  For our $500,000 example, closing costs would range from $10,000 to $25,000.


·         Homeowner's Insurance and Moving Costs -- Every mortgage needs to be insured.  The first annual premium is usually paid at closing.  Buyers also need to budget for moving costs and setting up utilities in the new home.

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Marc Dosik

As far as I’m concerned, the buck stops with me. As an Associate Broker, I can make things happen quickly. You’ll have easy access to the primary decision-maker for any transaction. I’ve bee....

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