Upfront Costs text over image of sold home

Upfront Costs: How Much Will You Need to Make a Purchase?

Purchasing a home is not quite as simple as it looks on television. There are numerous fees and costs associated with the purchase, and, while most are affordable, they add up in total price.

Make sure you are prepared by understanding the upfront costs for purchasing a home.

Upfront Costs for Purchasing a Home

Note: Financial numbers provided are for general information only and may not reflect the actual numbers for purchasing a home in your area. Prices will change over time and will be impacted by the house you buy and the area where you are purchasing. Speak with a professional for precise information.

Earnest Money: 1% to 4% of the Sale Price

Essentially, this is a financial commitment telling the seller that you are serious about purchasing their home. It is a deposit from the buyer to the seller that represents your good faith and intention to purchase their property. In many ways, it can be considered a deposit on the home; money you pay that, if you back out of the purchase, the seller gets to keep.

The total amount of this good-faith payment, which goes towards the purchase once final details are completed, is about 1% to 4% of the home. In rapid markets, it can be more, as buyers will want to offer a large amount to really show their intentions.

Inspections: $300 – $500 (Depending on Which Inspections are Requested)

Once you have come to terms on a price, and given an earnest money payment, you will want to complete inspections. Even in the fastest-moving home markets, you will want to have thorough inspections completed before making the purchase.

Inspections are requested, and paid for, by the buyer. While you can certainly buy a home without an inspection, most real estate agents and experienced home-buyers would not recommend it. Even with new homes, you need to know that you are purchasing a reliable, quality property. Inspections should include a general home, termite, and radon testing, and if you there is a gas tank, septic system, and well water, these should be inspected as well.

Appraisal Fee: $300 – $500

Before finalizing the loan, the bank or lender will need to know the potential value of the property. Basically, they want to know that if the loan goes into default and they have to seize the property, they will seize an asset that has a certain value. To put it another way, they don’t want to lend $500,000 on a property that is only valued at $250,000.

An appraisal will help them understand the value of the home (even though “value” is nothing more than what someone will pay for it, so it can change greatly), so they can confidently make the loan. Usually appraisal fees are paid after the inspections, typically on the closing day.

Downpayment: $0 to Infinity

This is the big one, the one that can (but doesn’t have to) reach hundreds of thousands of dollars or even millions. There are simply too many variables with a downpayment to describe in a couple of paragraphs; just know that it can literally range from zero dollars to well over $250,000 if you choose. In most cases, however, a few thousands dollars ($2,000 to $10,000, generally speaking) should be enough to secure a mortgage.

There are even options for zero-down mortgages, so talk with a lending agent for more information.

For more details on downpayments, see our article: “How Much Will You Need For A Downpayment?

Credit Report Fees: Around $25

Part of the loan-approval process will be a credit report. This service allows the lending agent to pull your information from the credit bureaus, and it will help them evaluate your reliability and general responsibility as a borrower.

This service costs a small fee, usually around $25. In some cases, you may be able to have this small fee wrapped into the loan, and it is possible to request the seller make the payment. (Either of these options are possible with just about any fee, although the seller rarely agrees to this condition, especially in a seller’s market.)

Loan Origination Fees: Less Than 1% of the Loan

Depending on the lender and the type of loan, there may be an origination fee, which is basically the service charge for creating the loan. These fees, if they exist, are usually a nominal charge that can be covered by most borrowers without significantly impacting their financial situation. They are often less than 1% of the loan, usually closer to 0.5%.

Loan Processing Fees: $300 to $1,500

Some lenders may also charge a loan processing fee. This is basically to cover any additional costs that have been incurred during the application process. Similar to your origination fee, they are usually minimal and can be handled by most borrowers out of pocket.

Immediate Property Taxes: Depends on Location, Situation

A small house on top of a large calculator
You may have to pay some property taxes when you take possession of the home.

In rare situations, you may be required to pay taxes immediately upon taking possession of the home. This usually happens when the seller has already paid taxes to cover a certain period, and you will take possession of the home overlapping this time frame.

For example, say the seller has already paid taxes to cover the rest of the year. You take possession of the home in July, but the seller paid taxes to cover the property until the end of December. In this case, you would essentially compensate the seller for the taxes they already paid.

There may also be municipal fees, such as sewer or waste-disposal fees, that need to be covered.

Recording Fees: $5 to $150

There could also be a fee from the municipality where your information on the sale of the home is being kept. Recording fees vary, as the price is set by whichever municipality is processing the information, such as the county or city where the property is located.

Find the Right Loan for Your Budget

When you are ready to make a purchase, contact our staff right away. We’ll help you understand all the upfront costs for purchasing a home, allowing you to have a smooth, stress-free home-shopping experience.