Determining Your Upfront Cost Of Buying A Home

When looking to buy a home, most people are mostly worried about whether they can afford a mortgage and the interest rate. As they qualify for a mortgage and determine a long-term payment plan, however, they often gain full confidence in their ability to purchase a given home.

This confidence overlooks one important element of home buying: the upfront cost of buying a home. No matter how you finance your mortgage, there’s no question that purchase a new house will require a down payment in addition to various other peripheral costs. These costs all add up quickly and usually cannot be deferred. As such, a prospective buyer needs to closely consider the initial expenses before going forward with a purchase. If the expenses are manageable, the purchase and the moving process can proceed. If not, no mortgage plan should obscure the fact that a given house may be out of your price range – or, simply, that now may not be the best time to move.

So what are the main upfront costs associated with buying a new house? Let’s take a quick look:

-Down payment. A new owner will typically be required to pay a down payment towards the purchase of their home. This payment varies in amount but usually represents 5%-20% of the total sale price. Since there are few homes being sold for 5% down since the housing bubble, we can probably assume a payment that falls more in the 10% to 15% range.

-Closing costs. If used in the transaction, real estate agents will be sure to take a cut of the sale price. In most cases, this cut falls somewhere in the vicinity of 5%.

-Moving expenses. Determining the cost of physically moving from one home to another can be difficult, especially considering that distance and weight stand to vary tremendously based on individual circumstances. But, for someone moving 10 miles and requiring the transport of 10,000 pounds, moving calculators estimate that costs will fall in the range of $5,000. Of course, one could save considerably by renting their own storage containers and doing all the work themselves.

-Upgrades and remolding. This final category is a true wild card, as your costs here could fall anywhere from $0 to several hundred thousand dollars. Some people will want to completely redo the kitchen when moving into a home – a highly expensive proposition – while others will simply seek to plant some flowers and paint some walls. Make sure that you have an idea of your plans and the associated costs while planning your moving budget.

So, assuming that you won’t spend any money on that last category, we can make a general estimate of the upfront costs.

If you’re buying a $200,000 home…

-Down payment: $20,000-$30,000 (average of $25,000)

-Closing costs: $10,000

-Moving expenses: $5,000

-Remodeling: $0

Total upfront costs: $40,000

While this is an extremely rough analysis, it nevertheless goes to show that a home’s upfront costs can be very considerable. If you’re planning a move sometime in the near future, don’t forget to keep these expenses in mind and only pursue a home that comes with upfront costs that you can afford.