How Much Money Do Homebuyers Need Up Front?

Money is always a hefty consideration in the homebuying process, and probably the most daunting. When thinking about what they can afford, many people focus on the big price tag: the purchase price.

But what about the expenses incurred along the way? How much money do you need up front when buying a home, and when in the process do you make the payments?

From your first walk-through to the closing, we’ve broken down each expense so you and your wallet aren’t caught off guard.

1. Earnest Money 

The first check you’ll write is for your earnest payment. This is a deposit that accompanies your offer to show you are serious about buying the house. It’s also referred to as “good faith money,” as it indicates you are making an offer in good faith and that you intend to buy the home. If you don’t have your checkbook with you at the time of the offer, don’t worry. You usually have a few days from the time of offer to secure the money.

Once your offer has been accepted, the earnest money is cashed and held in the listing company’s trust account until closing. At that time, you get the earnest money back as credit to apply toward your down payment and other closing costs.

If the deal falls through and you end up not purchasing the home, whether or not you get the earnest money back depends on the wording in your contract. Make sure your purchase agreement contains information about how the refund will be handled in this situation.

How Much? 

The amount of earnest money you’ll pay depends on the purchase price. Some real estate agents take a fixed-amount approach. Others aim for a certain percentage, typically one to two percent of the purchase price. Your REALTOR® will work with you to make the final call.

The payment method for earnest money also varies depending on your real estate agency. For example, Urban Acres accepts checks, cashier’s checks, and ACH (Automated Clearing House) transactions for earnest money deposits.

2. Inspections

Most homebuyers already expect this expense, but how much will it cost? While not always required by the lender, home inspections are important for protecting yourself financially and are usually recommended by your REALTOR®. There are no online reviews to warn you of potential issues in your home—only an inspection can help identify whether you may be facing costly repairs or replacements.

The main inspections typically include pest, radon, and home inspections. Here’s what these services cost in the Cedar Rapids-Iowa City Corridor, on average:

Pest: $60-70

Radon: $125

Home: $340-500

When all is said and done, inspections cost roughly between $525-700. These expenses are paid to the provider at the time of service.

3. Down Payment 

You’ve found your dream home, paid your earnest money, and the home has passed inspection. It’s time to close, which means you have to hand over your down payment. A down payment is the money you pay up front to get a home loan. These two little words mark an exciting step forward in your home-buying journey. The down payment is also usually the hardest to stomach financially.

How Much? 

You and your lender will decide on the amount of your down payment. Although you can put down as little as 3.5 (or even zero) percent, the old rule of thumb was to put down 20 percent of the purchase price. However, this standard is becoming increasingly uncommon. The amount you and your lender settle on will depend on your financial situation and your loan type.

If your lending institution is also your bank, they can often transfer the amount between accounts. If not, you’ll need a certified check.

4. Moving 

Now it’s time for the big move. While it’s not necessary, hiring a mover can be helpful, especially when transporting the big ticket items that won’t fit into the back of your car (e.g., furniture, beds, etc.) The cost of hiring a mover will depend on the distance of the move and whether it’s across town or across the country. Ask your REALTOR® for names of moving companies in your area. Even if you don’t hire a mover, plan on setting aside a few dollars for a pizza fund to reward the friends you’ll recruit to help you.

Moving supplies are another cost to consider. Before you buy dozens of boxes, check businesses around the community. Are there any stores in the area—think Hy-Vee, Dollar General, Walmart, or Target—that have boxes they’d give away for free? Do you have family or friends that have moved recently? If nothing else, you can’t go wrong with lots of clean newsprint to wrap your belongings.

To Summarize… 

Buying a home is a huge step in your life, both personally and financially. Knowing what to expect and having a trusted REALTOR® by your side can help make this process as smooth and enjoyable as possible.

Still have questions? Reach out and we’d be happy to help guide you through the up-front costs of buying a home.

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