September 17, 2020

Budgeting for Upfront Costs: The Homebuyer’s Guide

While many homebuyers typically budget for their monthly mortgage payment—and include things like Private Mortgage Insurance (PMI) and escrow payments in their planning—there are upfront costs that must also be considered when determining a homebuying budget.

Upfront costs are the one-time expenses you’ll pay after you make an offer on a home and the offer is accepted. Below is a list of the key expenses you should be prepared to cover. The exact amounts you’ll pay will vary, so be sure to speak with your homebuying team about what you should expect for your specific homebuying situation.

What is the difference between closing costs and cash to close?

Closing costs are all the service fees required to close on your loan. Cash to close, on the other hand, is the total amount - including closing costs - that you'll need to bring to your closing.

Down payment (3-20% of the purchase price)

A down payment is typically 5 to 20% of the purchase price of your home - but qualified borrowers can put down as little as 3% with options like Freddie Mac's Home Possible® or HomeOnesm mortgages.

Learn about down payment assistance programs.

Earnest money deposit (1-2% of the purchase price)

Earnest money is a sum of money you submit with your offer to show the seller that you are serious about purchasing the home. It’s also known as a “good faith deposit.” During closing, the amount you pay in earnest money can be applied toward your down payment or closing costs.

Home inspection ($300-$500)

When buying a home, your responsible for paying for the inspection of the home. An inspection will tell you about the home and any potential maintenance issues you should be aware of. Your real estate agent should be able to recommend several well-qualified home inspectors in your area.

Closing costs (2-5% of the purchase price)

Closing costs are what you will pay to the people representing your purchase, including your lender, real estate agent and other third parties involved in the transaction. Also known as settlement fees, closing costs typically include the following:

  • Government recording costs
  • Appraisal fees
  • Credit report fees
  • Lender origination fees
  • Title services
  • Tax service fees
  • Survey fees
  • Attorney fees
  • Underwriting fees

Oftentimes you can roll your closing costs into the loan, so be sure work with your lender to find a solution that best fits your financial situation. Use the Freddie Mac closing costs calculator to estimate what your expenses will be.

Moving expenses (costs will vary)

You could hire professional movers or pack and haul your belongings yourself. Use an online moving cost calculator to estimate your costs based on the method you choose. If you plan to hire a moving company, get quotes from more than one provider. Learn more.

Beyond these upfront costs, you will likely have additional recurring payments rolled into your monthly mortgage payment. Be sure to plan for costs such as PMI and escrow (which typically includes property taxes and homeowners insurance) before diving into homeownership.

For more information on budgeting for homeownership, follow along on our blog or visit My Home by Freddie Mac®.