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Costs of Homebuying

Costs of Homebuying

Wednesday, November 30, 2022/Categories: Community News, Saving & Planning

If you're in the market for a new home, it's essential to be aware of all the associated costs—the purchase price is only the baseline. Here are five hidden costs of buying a house that you may not have considered. You can make sure you have enough money to cover these expenses by being prepared.

1: Earnest Money Deposit

As a buyer, you make an earnest money deposit (EMD) to show that you are serious about buying a property. The deposit is typically 1-3% of the offer price. It is usually held in escrow by the seller's real estate agent.

The earnest money deposit will be applied to the purchase price if the deal goes through. If the deal falls through, you'll get your earnest money back.

In some cases, the earnest money deposit may be non-refundable if you back out of the deal without a solid reason to satisfy the seller.

For example, if you decide to back out of a deal after approval for your loan, you may forfeit your earnest money deposit. It's vital to be sure that you are ready to commit before making an earnest money deposit.

2: Down Payment

The down payment is the portion of the purchase price you pay upfront, typically 20% of the total loan amount.

For example, if you're buying a house for $200,000, your down payment would be $40,000; the remaining $160,000 you pay in installments through a mortgage loan.

If you're unable to make a 20% down payment, you may still be able to buy a house, but you'll likely have to pay for private mortgage insurance (PMI). This insurance protects the lender in the event that you default on your loan.

3: Closing Costs

Closing costs are the fees associated with finalizing a real estate transaction. They can include the loan origination fee, appraisal fee, inspection, title insurance, homeowners insurance, property taxes, escrow fees, and more.

Closing costs are typically 2-5% of the purchase price. So, if you're buying a $200,000 house, you can expect to pay $4,000-$10,000 in closing costs.

These fees are paid at closing, typically by both the buyer and the seller, when the home purchase transaction is finalized and the keys are exchanged. Though often, the buyer is saddled with the majority of these costs.

4: Moving Expenses and Nest Egg

Moving expenses cover many things, such as packing supplies, movers and moving trucks, fuel, utility deposits, and more.

The cost of moving can vary greatly depending on how much stuff you have, the distance you're moving, and whether or not you hire professional movers.

It's also essential that you don't leave yourself “house poor.” This means that you should have at least a small nest egg saved up to cover unexpected emergencies, such as home repairs and maintenance as there are often unexpected costs associated with a new home.

5: Furnishing and Decorating Costs

Many first-time homebuyers are caught off guard when they realize that their home may not come with everything from the showings. For example, homeowners may choose to take their light fixtures with them or the window coverings.

You may also need furniture and supplies for your new house, such as a vacuum cleaner, pots and pans, dishes, towels, bedding, cleaning supplies, and more. These costs can add up quickly, so be sure to factor them into your budget.

There are many costs associated with buying a house on top of the purchase price. By being aware of these costs ahead of time, you can be better prepared financially. Creating a financial plan and getting pre-approved with your local community bank would be a healthy way to start your home-buying experience.

Visit the Lending Team page at Andover Bank’s website and work with one of our trusted lenders to be better prepared. An earnest money deposit, down payment, closing costs, moving expenses, and home furnishings don’t have to be surprise costs of buying a house. Make sure you factor these costs into your financial plan, so you're not caught off guard.