Don’t Get Caught by Surprise: The Upfront Costs of Buying a Home

If you’re in the market to buy a home, you’ve probably heard about closing costs. However, understanding just how much more you’ll need beyond the purchase price is crucial before you make any commitments. Buying a home comes with several upfront costs that can catch you off guard if you’re not prepared. Today, I’m going to break down five key types of upfront expenses that you should expect during the home buying process and provide some insight into when these costs will come into play.

1. The Down Payment: Your First Major Expense

One of the most well-known costs associated with buying a home is the down payment. Unless you’ve secured 100% financing, you’ll need to cover the difference between your loan amount and the purchase price of the house. Your lender will discuss your loan-to-value ratio (LTV) with you, which helps determine how much you’ll need for your down payment. For instance, if your LTV is 80%, you’ll be required to put down 20% of the purchase price. If you’re purchasing a $300,000 home with an FHA loan, which requires a 3.5% down payment, you can expect to pay $10,500 upfront.

But don’t be fooled into thinking this is the only upfront cost you’ll face. There are several other expenses to prepare for before you can close on your new home.

2. Earnest Money Deposit: Showing Your Commitment

Your earnest money deposit is a good-faith gesture to demonstrate your commitment to purchasing the home. This deposit is due upon the full execution of the contract and is typically held by the seller’s title company until closing. In Kansas City, the standard earnest deposit is about 1% of the purchase price for resale homes, while for new construction, it could be closer to 5%. This money isn’t an additional fee; it’s part of your down payment and is credited back to you at closing. Keep in mind that while earnest deposits on resale homes are often refundable if the deal falls through due to a contingency (like an inspection issue), deposits on new construction are usually non-refundable, given the customized nature of the build.

3. Inspection Fees: Protecting Your Investment

Unless you’re purchasing a property “as-is” without inspections, you’ll need to pay for a home inspection, which is conducted by a licensed inspector. The cost of inspections can vary widely depending on the specific tests you choose to conduct. In Kansas City, we typically advise budgeting between $500 and $900 for inspection fees. This might include general home inspections, radon tests, pest inspections, or even mold assessments, depending on the property. These fees are paid directly to the inspector and are usually due at the time of inspection or when you receive the report. It’s important to remember that inspection fees are not part of your closing costs and must be paid upfront.

4. Appraisal Fees: Ensuring the Home’s Value

If you’re financing your home, your lender will likely require an appraisal to determine the property’s market value before finalizing your loan. This appraisal ensures that the home is worth the amount you’re borrowing. The cost of the appraisal usually ranges from $500 to $700 in the Kansas City area and is often due 5 to 15 days after going under contract. Some lenders may advise ordering the appraisal right away to speed up the closing process, while others may suggest waiting until after inspections are completed to avoid unnecessary costs.

5. Closing Costs: The Final Hurdle

Closing costs encompass various fees associated with processing the transaction, including lender fees, title company fees, and any other services involved in the home purchase. This is when you’ll pay your lender, title company, and possibly your real estate agent for their services. These costs can vary widely based on your location and the specifics of your loan. For example, in Kansas City in 2024, closing costs typically range from $5,000 to $9,000. However, the final amount you pay will depend heavily on your home’s purchase price, as this directly impacts your insurance, taxes, and interest.

Your closing costs can include a variety of charges, such as title fees, lender fees, prepaid interest, homeowners insurance, and any impounds for taxes and insurance. If your home is part of a homeowners association (HOA), you might also need to reimburse the seller for any prepaid HOA dues. Additionally, if you agreed to pay your real estate agent’s commission, this will also be settled at closing.

Preparing for the Unexpected

As you can see, the cost of buying a home extends well beyond the purchase price. It’s crucial to be financially prepared for these additional expenses. If the thought of these extra costs feels overwhelming, don’t worry—many lenders offer financing options that can help mitigate some of these upfront fees, though this might mean accepting a higher interest rate. Skilled negotiation can also play a key role; in some cases, you can negotiate for the seller to cover part of your closing costs.

To make the home buying process smoother, I recommend taking advantage of resources like our free home buyer consultation, where we’ll personally walk you through these steps and answer any questions you have. We also have a detailed home buying guide linked in the description below that covers all these aspects in greater depth.

If any of these costs surprised you or if you have any questions, feel free to leave a comment below. And remember, if you’re thinking about making a move in the Kansas City area, reach out to us. My contact information is listed, and we’d love to put Kansas City’s highest-rated real estate team to work for you.