What to Budget for When Buying a Home

Buying a home is one of the biggest financial decisions you’ll make, but the listing price is only part of the equation. There are several costs you should prepare for when purchasing a home. From inspections to insurance, here are some key expenses to plan for so you’re financially prepared when buying a property in Vermont. 

1. Pre-sale Inspections 

Depending on how many pre-sale inspections you choose to do, these costs typically fall on the buyer. The price of a standard home inspection is based on the size of the home and can range between $400 - $700. You also may need to budget for additional inspections and tests, such as radon, water, chimney, and septic. While not mandatory, these extra evaluations are often requested by buyers to ensure the home and its systems are in good condition before finalizing the sale. This can save you from costly surprises down the road or prevent you from purchasing a property outside of your means.

2. Homeowners Insurance

Home insurance is legally required if you're financing your home with a mortgage. Lenders want to make sure the property is protected, and as a buyer, you should too! The cost of homeowners insurance can vary based on location, coverage level, and home value, but it’s a recurring cost to factor into your monthly budget.

3. Appraisal and Loan Origination Fees

If you're taking out a mortgage, your lender will require a professional appraisal to confirm the home’s market value. This ensures the property is a sound investment. Appraisal fees are paid upfront by the buyer, usually before final loan approval. 

You’ll also encounter a loan origination fee, which is a charge from your lender for processing the loan application. This fee varies but is typically 0.5% to 1% of the loan amount. If you’re getting financing, it is recommended to research two or three different lenders to learn more about their offerings and fees.

4. Saving for a Down Payment

Some loan programs let you buy a home with as little as 0% to 5% down. However, if you’re able to put down more, this can help you qualify for a better interest rate and lower monthly payments. It also shows sellers that you're financially prepared and serious about buying. A common goal is to save 20% of the home’s price, but any amount above the minimum can be helpful. 

Need help with your down payment? The Vermont Housing Finance Agency (VHFA) offers specific programs and down payment assistance programs through local lenders. Visit their website to learn more and see if you qualify. 

5. Earnest Money Deposit

When you make an offer on a property, you’ll include an earnest money deposit. Think of it as a way to show the seller you’re committed to the purchase. This deposit is typically 1% to 3% of the price of the property, but it can be higher if the home is in high demand or if you want your offer to stand out.

6. Closing Costs

In addition to your down payment, you’ll need to budget for closing costs—the various fees and expenses due when finalizing the purchase of your home. These typically range from 2% to 7% of the purchase price, depending on the location, property, and lender. These fees are handled at the closing table and are often paid for out of the transaction.

Here’s a breakdown of common closing costs:

• Attorney Fees – Legal services to help prepare and review documents.
• Title Insurance – Protects you and your lender if there’s an issue with the property’s ownership history.
• Property Transfer Tax – A state tax paid when a home changes ownership.
• Tax Prebate Repayment – In Vermont, if the seller received a property tax prebate, the buyer may be responsible for reimbursing a portion.
• Recording Fees – Charged by the town or city to officially record the sale.
• Prepaid Interest – Covers the interest on your loan from the closing date until the end of the month.
• Escrow Deposits – Upfront payments for future property taxes and homeowners insurance.
• Pro-rated Property Taxes & Utilities – You may need to reimburse the seller for their portion of property taxes or utilities already paid for the year.

Helpful Tip: It’s often less expensive to close at the end of the month, since you’ll pay less prepaid interest upfront.

7. Buyer's Agent Commission (If Not Covered by the Seller)

While it’s typical for the seller to cover the cost of the buyer’s agent in a real estate transaction, that is not always the case. If the seller doesn’t offer this, it may become an out-of-pocket expense for the buyer, so it's important to clarify with your agent how the commission will be paid early on, before looking at properties.

6. Moving Expenses and New Furnishings

The cost of moving, whether you’re hiring professional movers or doing it yourself, can add up quickly. You may also need to budget for new furniture, appliances, window treatments, or even utility setup fees. It’s easy to overspend during this exciting transition, so build a cushion into your budget to avoid stretching yourself too thin.

Buying a home is exciting, but it’s important to leave enough financial breathing room for life after closing. By planning ahead for these lesser-known expenses, you can avoid surprises and start your next chapter on solid financial ground. To learn more about the costs of buying a home, connect with a Realtor.