Buying a home is a huge financial commitment. You’ll need to save for a down payment, but there are also a number of upfront costs you need to plan for.
Upfront costs include the down payment, inspection fees, and appraisal fee. Understanding what these costs are before you buy a home can make the process easier and more affordable.
Regardless of whether you’re a first-time homebuyer or a seasoned real estate investor, the mortgage process can come with plenty of fees that could end up weighing heavily on your finances. That’s why it’s important to be familiar with what you can expect upfront.
One such fee is the loan origination fee. This is a percentage of the total loan amount that you pay to the lender for their services in originating the loan.
You’ll typically find this fee on your loan estimate, but it may also be included as part of your closing costs.
Other common fees include application fees, credit report fees, appraisal fees and home inspection costs. These are all unavoidable, but you can often save money by shopping around for lenders that don’t charge them. Some, like Better Mortgage, don’t even charge an application fee at all. This can help you free up a little extra cash each month to pursue your next big dream.
Stamp duty is an upfront cost that is paid by a home buyer when they purchase a property. It is often one of the biggest costs that people have to pay when they buy a property, so it’s important to understand what it is and how it can affect you.
In some states, there are exemptions from stamp duty for certain people. These include health card holders, pensioners and Indigenous people.
However, the amount you will pay depends on where you live and how much your property is worth. The rates vary but you will normally pay 2% on the first PS250,000, 5% on the next PS250,000 and then 10% on anything over PS1.5 million.
If you’re buying a second or further property in England and Northern Ireland, an additional dwelling supplement will apply. This is 3% higher than the standard rate of stamp duty.
Registration fees are an upfront cost that you will pay when you buy a new vehicle. These are paid to the motor vehicle agency for your license plate, title and registration.
They can vary from state to state, so be sure to check the fees in your home state before you buy a vehicle.
If you’re buying a new car, your dealership will likely handle this for you. You will have to pay these fees at the time of purchase and also at each subsequent renewal.
The registration fee for a car is based on the model year and passenger weight class of your vehicle. It also includes a $5 local fee.
You can renew your registration on a one or two year basis, depending on the period that you’re eligible for. These costs can add up quickly, so be sure to budget for them. This is especially important if you’re buying a new vehicle with financing.
One of the most important upfront costs is the deposit you pay on your home loan. This amount should be well above 20% of the purchase price. The more you can save for this sum, the less you will have to borrow from your lender – and the better off you are in the long run.
It’s also worth noting that you’re more likely to be approved if you can provide a large enough deposit. This is because a larger percentage of the total cost can be used to cover your down payment, closing costs and other mortgage expenses.
In all likelihood, your lender will require you to supply proof of a few things. They’ll probably ask for a few months’ worth of bank statements to show that your personal savings are slowly building up. Besides the obvious, they’ll likely ask you about your home-owners association dues and any other tidbits you can give them to prove that you are a responsible homeowner.