How Much Money Do I Need to Buy a House?

How Much Money Do I Need to Buy a House?

Have you been bitten by the HGTV bug? While renovation costs are often covered in TV shows, there are a few hidden price tags that come with purchasing a home that are never discussed. It may be more fun to crunch numbers when it comes to the projects and possible resale (cha ching!), but there are a few lump sums you’ll need to cough up before you can even get the keys. Because I don’t want you to be blindsided, I’ll go over the basics that you should start saving for now. Don’t be discouraged; just be informed!

You’ll have to pay for an inspection.

While your real estate agent can try to work magic and get as many things paid for by the seller as possible, likely, you’ll need to shell out the $300-$600 for an inspection. If you’re buying with cash, this is an optional step. You should know, however, that the smartest buyers never skip this step, despite the price. You want to know the truth behind the property you’re getting, and don’t want to be stuck with a lemon. If the inspector does damage to the home in the process of checking for issues, you’ll be responsible for paying for that damage. Talk to your inspector beforehand and be clear about your expectations. A good realtor should be able to assist with this.

You’ll have to pay for appraisal.

Appraiser’s fees are anywhere from $300 to $450, and this bill rests on the buyer, unfortunately. The lender is the one who orders the appraisal, to determine the real value of the home. They do this because a house can be listed for sale at any price, but the lender wants to make sure it’s actually worth the money they are about to lend you. Again, if you’re paying with cash, you can skip this cost.

The buyer pays for closing, in addition to providing a down payment.

Because these two costs are typically rolled into the closing date, it can be easy to forget they are actually two separate costs. You’ll be giving a percentage of the price of the house to your lender, depending on the type of loan you have secured. An FHA loan, for example, allows you to put down 3.5% of the price of the home, and you can’t get any lower than that. (The more you put down, the lower your mortgage payments will be.) The closing costs, however, can vary greatly and can actually be paid by the seller, if your realtor negotiates for that. These costs consist of various fees associated with the transaction, and can run between 2 – 5% of the sale price of the house.

The realtor will ask you for an “earnest money deposit”.

When you submit an offer on a house, putting a check in your escrow account shows the seller that you’re a serious buyer who plans to see this thing through. This is not an additional fee because it will go toward your down payment at closing. It actually means you’ll be bringing less to the table at the closing, because you’ve already given a portion to your realtor up front. The amount you put on the check is up to you, but is typically 1 – 2% of the purchase price. If you find problems during the inspection or are denied a mortgage even though you were pre-approved, you can get your deposit back, minus a small cancellation fee.

While it doesn’t affect purchasing your home on the front end, if you plan to sell your home in less than two years, you’ll likely be responsible for capital gains taxes. So when you see people on TV flipping a house in a few months’ time, know that they are handing over a percentage of their profit to the government. Because the details vary from state to state and from circumstance to circumstance, you’ll want to discuss it with an accountant beforehand.

Don’t let this information keep you from buying a home. It’s one of the best investments you can make! Just be aware that as the buyer, it takes a little more than your down payment and closing costs to get in the door.


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