Buying a Home? Know These 3 Things That Will Require a Lot of Upfront Cash

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As you're getting ready to buy a home, you probably have been saving up as much money as possible to better prepare yourself. Your down payment will be the biggest expense that is needed to close the deal, but it is not all that you need to be concerned about. Be prepared for these expenses so that you have enough money to buy your home.

The Down Payment

The loan you receive will determine how much money you need to provide as a down payment. The standard used to be 20% of the cost of the home, but that has changed recently. Loans these days don't require nearly that much to be paid as a down payment. VA and USDA mortgages don't need a down payment, and an FHA loan will only require 3.5%.

The down payment requirement for a conventional loan will be different depending on your county and lender requirements. Conventional loans are usually between 3%-20%, and will require more money if you have poor credit.

Generally, you shouldn't be putting any more than 20% down for a down payment though. That is where you'll see the most benefits from a long-term savings perspective. You'll avoid paying for private mortgage insurance (PMI), and have less interest to pay because the loan is smaller. If you do not have a prepayment penalty, you can also pay more towards the loan after closing if you wish.

The Closing Costs

When purchasing a home, you will also have to pay closing costs. This is not just paying the realtor a percentage of the home's price for a commission either. Closing costs include the mortgage origination fee, land surveys, title search, appraisals, and anything else you need to have done to purchase the home. You can expect these expenses to make up as much as 5% of the home's sale price.

The Property Taxes and Insurance

If your taxes and insurance are being paid for through escrow, you will need to prepay those expenses up front. While the tax bill may not come until several months from now, the money needs to be available in your escrow account. Don't get caught off guard by this, since taxes are a significant cost of home ownership.

While these are the major expenses you'll need to prepare for, they are only some of the costs associated with buying a home. For more info on what to expect, speak with a local real estate agents with property for sale.