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Understanding the Costs

As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs.


If you're in the market to buy a home, your down payment is probably top of mind. And rightly so - it's likely the biggest cost of homebuying. However, it is not the only cost and it's critical you understand all your expenses before diving in.

The more prepared you are for your down payment, closing and other costs, the smoother your homebuying journey will be.

Down Payment: Depending on your credit history and other factors, you'll need to make a down payment ranging from 3 - 20% of the purchase price of your home. Take the time to learn more about down payment options, Private Mortgage Insurance (PMI) and down payment assistance programs.

Closing Costs, also called settlement fees: These costs (also called settlement fees) are incurred as part of the homebuying process. These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction. Generally, closing costs range between 2 - 5% of your purchase price and include:

1

Government recording costs

2

Appraisal fees

3

Credit report fees

4

Lender origination fees

5

Title services

6

Tax service fees

7

Survey fees

8

Attorney fees

9

Underwriting fees

Understanding Escrow

A lot of homebuyers are confused about escrow — perhaps because it plays dual, but different, roles when it comes to your home: during the homebuying process and as a homeowner.

Earnest Money Escrow: Also referred to as “good-faith money,” this is a sum (typically 1 – 2% of the purchase price) that you can put down with your offer, showing the seller that you’re a serious buyer. This money will be placed into an escrow account, held by a designated third party until closing – at which time you can apply toward your down payment or closing costs.

Reserve Account Escrow: Many lenders require that you establish an escrow account under the terms of your mortgage at closing. This acts as a savings account to cover your annual costs for property taxes and insurance premiums, such as homeowners insurance and PMI. Most lenders require that you pay two-months’ of these reserves up-front (at closing). With each monthly mortgage payment, a portion of your payment will go into your escrow account and your lender will pay your taxes and insurance bills on your behalf when they are due.

Be sure to talk with your lender about all anticipated costs throughout your homebuying process. The more you’re familiar with fees and costs, the better off you’ll be.

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