How much money will I need to purchase a home?
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UPDATED: Apr 15, 2021
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The amount of money needed to purchase a home depends on the desired property, but there are similar costs for all potential homeowners to consider. When applying for home loans, potential buyers should consider the cost of down payment, an earnest money deposit, inspection fees, closing costs, property taxes, and utilities.
The first item to consider is a down payment. A down payment is a percentage of the property’s sale cost that a homeowner wants to pay upfront. The recommended or required down payment will vary depending on the loan a potential buyer wants. For VA home loans, available only to approved military veterans, a down payment is not necessary. Some homebuyers with additional funds may choose to pay off a larger percentage of the sale’s cost with a larger downpayment in order to reduce the monthly payments or length of their home loan.
Another part of the down payment is the earnest money deposit. This is the amount of money paid to secure a purchase contract and can vary from several hundred dollars to a few thousand. An earnest money deposit shows that applicants are serious about buying a home and it is made available in case buyers back out of their contracts.
A third payment needed when purchasing a home is inspection fees. Before purchasing a home, buyers should have a home inspection. A certified inspector will review the property for issues related to electrical, plumbing, and the foundation, to name a few. An inspector will usually cost between $200 and $400, and the cost can either be paid by the buyer or the seller, depending on the contract.
The next main cost for a homebuyer is closing costs. Closing costs include survey fees, title insurance, and bank fees. Closing costs can vary, but will likely range between 3 to 5 percent of the property cost.
One of the remaining costs depends heavily on the property location: taxes. Homeowners will have property taxes, and, depending on the area, could have homeowner association fees and city or county taxes. Normally, taxes are added to the mortgage payment, but homeowners should review their home loan forms thoroughly to confirm this information.
On top of the initial costs, there are some less-obvious costs for homeowners. Some rental properties pay for part or all of a renter’s utilities. After home loans are approved, all utility costs must be covered by the prospective homeowners. These include, but are not limited to, gas, electricity, water, and trash. A real estate agent will be able to help estimate the average cost for utilities on a property.
The path to homeownership can be an expensive and confusing process, but if buyers are ready to make a decision, it can be a fresh start on a new home. To prepare for the home buying process, make sure you have all your paperwork together before applying for a loan to streamline the process.