The breakdown on home buying costs
Whether you’re purchasing your first home, investing in a vacation property, or venturing into commercial or multi-family real estate, the cost of buying a home can vary significantly. It’s essential to have a clear breakdown of the expenses you can expect throughout the purchasing process. Here’s a general overview of what to anticipate:
Earnest Money: Often, buyers are required to deposit around 1% of the offer amount into an escrow account within 2-3 days of their offer being accepted. This deposit is applied to closing costs or the down payment and is refundable if the inspection doesn’t meet expectations and the offer is rescinded.
Appraisal: This fee, typically ranging from $800 to $1500, is paid at closing. It’s crucial for determining the fair market value of the property.
Escrow Fees: These fees, typically around 1% of the sales price, cover the services provided by the escrow company, including managing funds and documents during the transaction.
Loan Origination Fees: Lenders charge this fee, which can be up to 1% of the sale price, as compensation for processing and securing your home loan.
Prepaid Insurance: Buyers often need to prepay three months of homeowner’s insurance and up to the first year of flood insurance, totaling around 15 months’ worth of premiums.
Prepaid Property Taxes: You’ll typically need to prepay three months’ worth of property taxes at closing.
Total Costs: In total, buyers can expect to pay approximately 3% of the sales price, though this may vary. Buyers using FHA or USDA loans may incur closer to 4% in costs. Additionally, if you opt to “buy down” the interest rate, you may incur additional expenses, possibly totaling an additional 1-3%.Understanding these costs upfront can help buyers budget effectively and navigate the home-buying process with confidence. Working with a knowledgeable real estate agent and lender can further streamline the process and ensure a successful transaction.