What expenses do I have to pay up front?

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Question:

I’m a first-time homebuyer and on a tight budget. I have a pretty good idea of how much down payment money I’ll need, and how much I can afford to pay in monthly mortgage payments. But I’m not as clear about other expenses I’ll need to pay upfront. Any tips on this?

Answer:

Smart thinking to plan ahead. Many buyers will have to spend some pretty serious cash before they even move into their new home. Besides down payment money, you should plan for the following up-front costs:

  • Closing costs, for everything from insurance premiums to loan points (each point is 1% of the loan principal; see the Nolo article Comparing Mortgages: Points, Interest Rates, and Fees). Closing costs will usually take up 2% to 5% of the house purchase price.
  • Moving costs. These depend on how far you’re moving, how much stuff you have to move, and whether you hire a professional moving company
  • Service setup costs, to set up cable, Internet, or other services in your new home.
  • Emergency fund. It’s a good idea (and sometimes a lender requirement) to have a few months of mortgage payments available in case something unexpectedly goes wrong.
  • Redecorating or remodeling costs. Depending on the home you buy, your current furnishings, and budget, you might want to set aside some cash early on to make your new home livable.

For detailed advice on figuring how the finances of buying a new home, see Nolo’s Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart.

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