PenFed Mortgage with Confidence


Creating Your Home Buying Budget

What you'll learn: Understanding what is included in closing costs


In this article, we’ll take a look at the expenses you should be thinking of when getting ready to purchase a home. The goal is to help you understand the cost of buying a home so that you can budget and plan accordingly.

Getting Your Credit Score in Top Shape

  • Pay off or pay down debt
  • Consolidate debt

The earlier you start to think about preparing for a home purchase, the better. If your credit could use a little assistance, taking the time early to improve your credit score can save you money over the life of your loan. There are two things you can do right off the bat to address your credit — pay off as many debts as possible or, at the very least, reduce your debt to a favorable debt-to-credit ratio. For example, if you have $5,000 as your credit limit and your balance is $4,500, you only have $500 available credit. Whereas someone who has the same $5,000 limit but only a $500 balance might have a slightly better score assuming both people have paid their bills on time.

Selling a Home or Property

As you prepare to purchase a home, you may need to get your current residence — even if renting — in top shape. Oftentimes, your house looks the absolute best the day you move in and the day you sell it; however, to get the most bang for your buck, having a home that attracts buyers is key. Here are some things to consider if you’re selling a home:

  • Repairs or maintenance needed to sell

    • Plumbing
    • Roofing
    • Fencing
    • Utilities
    • Electrical
    • Paint
  • Improvement of curb appeal

    • Paint
    • Landscaping
    • Roofing
    • Fencing
    • Driveway

Putting Money Down With Your Offer

Once you’ve found your home, you typically need some cash as a “good faith” deposit to go along with your offer. Some people call this “earnest money”, others “good faith”. It might be a fixed amount in some areas — as much as $5,000. In other areas, it might be a percentage of the overall sale. The good news is that this money may be refundable based on the terms of the sales contract or it may be applied to your down payment upon purchase.

The value of this payment and why it might be good to place more down is that you are asking the seller to take their property off the market. In a competitive market, placing more earnest money down is a sign you are serious and perhaps might help get your offer accepted compared to another offer.

Getting Appraisals and Dealing With Inspection Fees

  • Appraisals
  • Inspections
  • Possible additional inspections

Once your offer is accepted, you’ll need to start the process of checking out the home more seriously.

You will need an appraisal of the property to ensure that the loan you are asking for is in line with the value of the home. You may also need a series of separate inspections to ensure the home is worth purchasing and to be made aware of any potential defects or repairs that may need to be addressed before the sale. The results may make you change your mind about buying altogether or it may nudge you to negotiate for a lower price.

An inspection will look at nearly all aspects of the home, such as:

  • Roof
  • Electrical
  • Appliances
  • Plumbing
  • Fences
  • Pest damage
  • Foundation issues
  • Safety hazards
  • Windows and doors
  • Rotting

In addition to a home inspection, you may need or request additional inspections based upon your area and the local requirements. For example, you may need or want inspections that address the following:

  • Pests — including rodents and bugs
  • Mold
  • Radon Gas
  • Pool

Total appraisal and inspection fees can vary, but you should do your homework to understand the costs in your area.

Preparing for a Down Payment

Down payment on a home can range from $0 with a VA loan to 20% (or more) of the total purchase price of the home.

With a VA loan, if you qualify and have a Certificate of Eligibility (COE), you may have no down payment requirement. A VA loan will also help you avoid private mortgage insurance (PMI). Keep in mine, there will be a VA funding fee, but a VA loan can be a great option after considering your financial situation.

If you place less than 20% down and don’t have a VA loan, you’re likely to need some type of mortgage insurance. While it’s a traditional rule of thumb to put at least 20% down, in today’s housing market, that isn’t always possible.

Preparing for Closing Costs

You should budget for closing costs to be somewhere between 2-5% of the total loan. While 2-5% of your total loan can be a lot, there is a lot happening behind the scenes to make your loan happen. Here’s a list of fees and costs that may be included in your closing costs:

  • Origination fees
  • Underwriting costs
  • Application fees
  • Courier fees
  • Title-based fees

    • Title search
    • Title settlement
    • Title insurance
  • State recording fees
  • Prepaid fees may include:

    • Property taxes
    • Homeowners insurance
    • Homeowners association fees
    • Interest
  • PMI or mortgage insurance
  • Escrow fees

There are always other things to consider when creating your budget, including:

  • Moving costs
  • Ongoing maintenance
  • Emergency repairs budget
  • Utilities
  • Locksmith to change the locks
  • Alarm system
  • New window coverings
  • Upgrades
  • New furniture
  • Deposits for utilities

That’s a lot to potentially budget for. This isn’t meant to scare you with an overwhelming amount of costs, but to make you aware of things to plan for as you begin to budget and search for a home.

To learn more about PenFed home loan or what’s right for you:

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Rates starting at % (APR %)¹


Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5


Rates as Low as % APR with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5


1Rates are updated daily at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.