Northwestern Mutual: The Costs of Homebuying: What Every Buyer Should Budget For

Buying a new home may mark an exciting transition in a person’s life—maybe they’re laying down roots, growing their family, or making a major move. No matter the situation, purchasing a house is a significant financial decision.

While most buyers prepare for the down payment and managing a mortgage, they may not anticipate some other costs. A thorough budget may help protect buyers from financial surprises. Even so, new homebuyers may want to find a financial advisor to help them create a solid financial plan that includes the cost of homebuying along with other living expenses to ensure they’re prepared to navigate the financial side of the homebuying process.

Closing Costs

Typically, closing costs are between 2% and 5% of the mortgage.¹ They include expenses associated with taking out a mortgage and finalizing the sale, like loan origination fees, title insurance, and attorney fees. However, closing costs will vary depending on the location and the circumstances of the sale. For example, some states have lower closing costs because of lower property taxes and insurance costs. To avoid confusion, a homebuyer may request an itemized list of closing costs from the mortgage provider early in the buying process.

Appraisals

A home appraisal is a professional assessment to estimate a property’s market value. Lenders typically require appraisals to ensure the mortgage they approve doesn’t exceed the amount for which they could sell the property to cover the loan. However, appraisals can also help homebuyers understand the value of their new investments.

A home’s size and location may influence appraisal costs, which typically fall between $350 and $600.² Unfortunately, buyers usually can’t shop around much for the best deal, as lenders often provide an approved list of appraisers to choose from.

Inspections

Inspections, like appraisals, involve bringing in a professional (or a few professionals) to assess a home before purchasing. Unlike appraisers, however, inspectors aren’t interested in home value. Instead, inspectors evaluate a space to ensure it’s safe and adherent to local codes.

A standard home inspection, which may cost several hundred dollars, looks closely at the home’s foundation, electrical set-ups, plumbing, HVAC systems, windows, and more. Home inspectors may also check for mold, flood damage, bad wiring, and unstable structures.

Homebuyers might consider additional inspections for specific issues, such as measuring radon levels or pest inspections to identify termites or mice. While specialized inspections may come at a higher cost, many homebuyers find the peace of mind worth the added expense.

Moving Fees

During the home buying process, it can be easy to overlook the time and money required to pack up one’s life and move it somewhere else. But expenses like moving vans or professional movers, and boxes can add up quickly. Cross-country or international moves might even involve shipping belongings or checking them on a flight. While it may be tempting to cut corners on this expense after making a down payment and covering closing costs, doing so might put precious belongings at risk. It’s better to build moving costs into the budget in advance to ensure the new home will be furnished after closing.

Expect the Unexpected

The homebuying process isn’t always predictable. A buyer may need to make a last-minute repair before moving in or cover a fee they weren’t aware of. By building some additional funds into the “dream home” budget, a buyer can be ready for whatever happens.

Sources:

¹ https://www.law.cornell.edu/wex/closing_costs

² https://homeguide.com/costs/home-appraisal-cost

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) and its subsidiaries in Milwaukee, WI.

Source: Northwestern Mutual

Contact: Don Klein, 1-800-323-7033