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Lesson 1.2

Upfront Costs of Homeownership

Chris Birk | Author of "The Book on VA Loans"

Preparing for Upfront Expenses

Buying a home is going to come with some upfront costs. But how much cash you’ll need on hand can vary widely depending on the type of mortgage, the size of the loan and more. Some homebuyers will face steeper upfront costs than others.

Here’s a look at five major expenses homebuyers may have to contend with:

Down Payment

VA and USDA loans don’t require a down payment, which is a tremendous benefit. Conventional loans typically require a down payment of at least 5 percent, although some lenders may go as low as 3 percent. For FHA loans, the minimum is 3.5 percent. On a $200,000 mortgage, that’s $10,000 for the traditional conventional down payment and $7,000 for an FHA down payment.

Needless to say, it can take prospective buyers years to save that kind of cash. Buyers may be able to use gift funds or down payment assistance programs to help secure home financing, but policies vary depending on the loan type, the lender and more.

Earnest Money

Borrowers will often need to include a “good faith” deposit when they make a purchase offer on a home. This deposit, known as earnest money, signifies you’re a serious buyer. There’s no hard-and-fast rule for how much you need. Some buyers might put down $200, while others will write a check for $2,000.

Buyers can typically get this money back if the deal falters; otherwise it’s often applied to a down payment or closing costs. VA buyers often put this money toward closing costs – or get it back in full – because of the program’s $0 down benefit.


Appraisals are a key part of the VA homebuying journey. This is a two-part process that assesses both the fair market value and the broad health and safety conditions of the property. We’ll talk about the VA appraisal process in greater detail later in this course. For now, it’s important to understand that you’ll be required to pay for an appraisal upfront.

Costs can vary by state, but the fee is typically about $425 for a single-family home. VA borrowers can look to recoup this cost from the seller at closing as part of their closing cost negotiations.

Home Inspections

Appraisals and home inspections are not the same thing. They look at different parts of a home in very different ways. Buyers aren’t required to get a home inspection, but it’s strongly recommended, as they’re much more detailed and granular than an appraisal.

A home inspection can find defects that appraisals won’t uncover, and borrowers can use the findings of a home inspection to renegotiate or even walk away from a contract. Costs will vary, but a good range is $300 to $500.

Closing Costs

There are costs and fees associated with originating and closing on your home loan. Closing costs can vary widely depending on the type of loan, where in the country you’re purchasing and what you’re able to negotiate with a seller. You’ll get an estimate of your closing costs fairly early in the home loan process.

From there, you’ll want to talk with your real estate agent about how to proceed. You can negotiate the payment of these costs with the home seller. The VA allows sellers to pay all of buyer’s mortgage-related closing costs and up to 4 percent in concessions, which can cover things like prepaid taxes and insurance and even paying off a buyer’s collections or judgments at closing.

It’s not uncommon for VA borrowers to have a seller pay most or all of their closing costs. But that’s not always feasible. Communicate with your lending team early and often about how much money, if any, you’ll need for closing costs.

Homefront Academy

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With Chris Birk,
Author of The Book on VA Loans