An upfront cost is one that is required to be paid for before actually owning a home. The upfront costs to buy a home are often referred to as the closing costs. Below you will find out what the upfront costs to buy a home are.
The most well known cost to buy a home among buyers is the down payment. A down payment is calculated by taking a percentage of the purchase price. The down payment is a cost that will vary depending on the type of financing a buyer is going to be obtaining.
Since there are so many different types of mortgages and each one has different down payment requirements, it’s strongly recommended that you get pre-approved for a mortgage before looking at homes!
Below are some of the most popular loan products that buyers can take advantage of. As you will notice the down payment is different with each and every product.
FHA Loans, which stand for Federal Housing Authority, is arguably the most popular mortgage product because of the low down payment percentage that is required. FHA Loans allow a buyer to come up with a minimal 3.5% down payment.
Conventional mortgage products are another popular option for buyers. There are many different types of conventional loans with the most common being the 5% down product. This loan requires a buyer to put down 5% of the purchase price. Conventional loans typically require a buyer to have higher credit scores than a FHA loan.
The VA Loan is an excellent option for those looking to buy a home with little to no money down. VA Loans, which stands for Veterans Administration Loans, allow a buyer to finance 100% of the mortgage. This allows a buyer to not have to come up with any money for the down payment. Even though the down payment required is zero, there are other costs to buy a home.
Another upfront cost to buy a home is the bank appraisal fee. Anytime a buyer is obtaining mortgage financing, the bank will require an appraisal to be done. An appraisal can be best described as a unbiased evaluation of a homes value to ensure the value is at least what a buyer and seller agree too.
The cost of an appraisal will vary but generally will range between $350 – $500. It’s important to understand that a bank appraisal is a cost that protects a buyer from overpaying for a home. A home that under appraises is a common bank appraisal problem but does help reduce the risk that a buyer has overpaid for the home.
Anytime there is a mortgage on a home, the lender is going to require that the home has homeowners insurance. Homeowners insurance protects the homeowner should something happen to their home or something happen on their property.
There are many reasons why homeowners insurance is important and why it is money well spent. The cost of homeowners insurance will vary depending on the property and it’s highly recommended to get a couple different quotes prior to paying for the insurance.
Some of the most popular real estate contingencies that buyers have the option to include in their purchase offer are various inspection contingencies. Popular inspections such as home inspections, chimney inspections, radon tests, and pest inspections are all costs that a buyer is responsible to pay for upfront.
These costs to buy a home will vary again depending on the size of the home, number of chimneys, and other factors.
Private Mortgage Insurance / Mortgage Insurance Premium
If you’re going to be buying a home with less than 20% down, it’s likely you will be paying PMI or MIP, depending on the type of mortgage. Mortgage insurance is a cost that is passed onto a buyer that is paid as part of their monthly mortgage that helps protect the lender in the event they default on their mortgage.
Mortgage insurance is a cost that is associated with a mortgage until there is a certain loan to value remaining on the mortgage. With some mortgage products, mortgage insurance will remain with the mortgage for the life of the loan. It’s recommended that you ask your mortgage consultant when you can remove private mortgage insurance, if at all.
Deferred maintenance can ruin a home very quickly. Every home will have some level of maintenance costs. For example, it’s suggested that the HVAC systems in a home are serviced and cleaned on a yearly basis. While the cost to perform an HVAC cleaning and servicing is only around $100-$150, it is an addition cost nonetheless.