Buying a House: What Expenses Will I Have to Pay Up Front?

Plan to pay more upfront costs than down payment money when you buy a house.

Question

I’m about to be a first-time homebuyer, and am 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 up front. Any tips on this?

Answer

Smart thinking to plan ahead for buying a house. Many buyers will have to spend some serious cash before they even move into their new home.

Besides the down payment money, you should plan for the following upfront costs:

  • Closing costs, for everything from appraisal and credit-check fees to recording fees to loan points (each point is 1% of the loan principal; see How Do I Get the Best Deal on a Home Mortgage Loan?. Closing costs will usually take up 2% to 5% of the house purchase price.
  • Insurance costs. Though the premiums may be combined with your loan closing costs, even buyers who pay all cash would be wise to purchase both homeowners' insurance (to protect against fire, theft, floods, earthquakes, and other hazards or damage) and title insurance (to protect against legal issues concerning the home's ownership and any liens against the property). Also, if you are taking out a loan and you're putting down less than 20% of the purchase price, your lender will require you to pay private mortgage insurance (PMI), typically up to 1% of the loan amount.
  • Homeowners' association (HOA) fees. If you're moving into a condo, townhome, or other community-based property, the HOA will likely collect a few months' worth of its dues and assessments in advance, at the closing.
  • 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. Six friends and a pickup truck may be an option (but in that case, at least plan to buy them all a round of pizza!).
  • Service setup costs, to set up or transfer utilities and 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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