When you first decide to look for a home, your initial goal is usually to beef up your savings account to put away as much as possible for a downpayment. Unlike other purchases you make on a regular basis, you can’t just charge this one and get to it later. Depending on where you live and what type of home you’re looking for, the amount of money that you’ll need will vary. Either way, once you’ve got that downpayment money saved up, you’re ready to buy your dream home right? Wrong. While you’ve got that downpayment under control, you haven’t even considered closing costs and that can throw a wrench into your big plan.
First time home buyers have a tendency to focus on the downpayment as their main goal so they forget that the entire process of buying a home costs money too and if they aren’t prepared, it’ll eat way at their savings. Typically the dollar amount associated with buying a house ranges from 2-5% of the overall cost so if you’re looking put 5% down on a $300,000 home, you’ll have to bring more than just the $15,000 down payment and will actually want to double that amount to cover your bases.
Making the transition from home buyer to home owner is a lot more complex than just an exchange of money. Below is a list of some expenses you can forecast that are above and beyond the initial down payment:
- Fees related to obtaining your loan from your lender, including credit report costs, loan application fees and loan origination fees
- A fee to obtain the title to the home and title insurance
- Attorney’s fees
- The cost of a home inspection
- An escrow account, which is essentially the buyer (you) paying for several months’ worth of property taxes and homeowners’ insurance up front
- Interest on your loan from the closing date to the end of the month
- Prorated homeowners’ association fees, if your property is part of an HOA
Of course each buyer has a unique situation so the costs will vary on a case-to-case basis but it’s always good to be aware of what home buying entails. When you’re serious about looking for a home, our team can take the guess work out of the equation by walking you through what closing costs you’re likely to pay in your position. If you’re not quite ready to dive in yet, that’s totally ok! Just make sure to focus your effort on budgeting for closing costs so when the time does come, you’re prepared.