Buying a home can be scary, especially if it’s your first real estate purchase, and even more so if you don’t know what you don’t know.

My goal with this article is to tackle at least one portion of homebuying, and that is your cash out of pocket.

I’m going to keep this pretty generic because the reality is, there are virtually infinite scenarios when it comes to home buying, which all depend on financials, credit scores, income-to-debt ratios, income in general, amount of down payment, interest rate, purchase price, the actual house you are planning to buy, and so on. In today’s scenario, I’m going to tackle the first-time home buyer purchase of a single-family house in Nashville, TN.

Let’s say we are buying a single-family, freestanding house, not a townhome or a condo, in the Donelson neighborhood of Nashville, and our purchase price is going to be up to $450,000.

First, as the buyer, we are going to talk with trusted (and hopefully referred by our Realtor) mortgage lenders. These conversations should lead to a pre-approval and you, as the buyer, knowing what your down payment, interest rate, purchase price, and monthly payment will look like.

So here I’d like to go over some, but not all, key terms that you will run into as you get into these types of conversations.

Down Payment: This is the money that you will have to put “down” to strike the partnership with the bank to get a home loan on a house. It’s your skin in the game with your financial partner, the bank.

Earnest Money: In Nashville, most residential deals will ask for an Earnest Money payment within the first 3 days of contract signing, and that amount can depend on the deal entirely, and is usually negotiated. I’ve seen anywhere from 1% to 50% for new construction. Most residential single-family house deals will fall in the 1%-3% range based on the negotiations of that point.

PMI or MI: Private Mortgage Insurance or Mortgage Insurance. Lenders mean the same thing when they are talking about PMI or MI. This is going to be an extra payment that you will have to make on your mortgage if you are putting down less than 20%. Most first-time home buyers today are putting down less than 20%, and if that is you, don’t worry, but there will very likely be an added payment called PMI or MI, and it’s usually something like less than $100 per month added to your mortgage payment.

Closing Costs: This is where people’s heads start to spin. As a buyer, you can expect closing costs to be about 2%-5% of the purchase price. In my experience in Nashville, closing costs usually fall in the 3%-ish range. You likely won’t see an exact breakdown of these fees until about 3 days from the closing date, and that is normal, which is why it’s important to budget for closing costs in advance and have good communication with your lender so that you don’t have any surprises. Closing costs are usually comprised of, but not limited to:

Lender fees — loan origination, underwriting, processing, etc.

Appraisal — confirms the home's value for the lender.

Home inspection — technically often paid before closing, but part of the overall purchase expenses.

Title & attorney fees — researching the title and preparing the legal closing documents.

Title insurance — protects against certain title problems.

Recording fees — fees to record the new deed/mortgage.

Prepaid taxes & insurance — money collected upfront for property taxes and homeowners insurance.

Escrow funding — your lender may require money to establish your tax/insurance escrow account.

HOA/condo fees — if applicable.

Seller Concessions: Nashville is in a buyer’s market right now, and as a result, sellers may wind up in a position where they want to incentivize buyers to choose their property over another. Here is where seller concessions may enter the equation. This is an opportunity for sellers to sweeten the deal for a buyer so that the buyer moves forward with an offer on their property. This often comes in the form of the seller paying the buyer money to go towards closing costs, or potentially, interest rate buy-downs. There is a lot of creativity that can happen here, which is why it’s important to have a knowledgeable Realtor to help you craft the best possible deal. Due to certain mortgage restrictions, there are boundaries regarding what parts of the deal the seller concessions can be applied to.

Interest Rate: The amount of interest you will be paying on your home loan. In today’s landscape, we are mostly seeing deals happening in the 5.5%-7.5% range, depending on a variety of key factors.

Agent Commissions: The money that the selling agent and buying agent earn from working on the transaction on behalf of their clients. This may come into the conversation as a negotiating piece during the deal.

OK, so let’s pretend that you are buying your first single-family house in the Donelson neighborhood of Nashville, and you are pre-approved up to $450,000, which is a great budget for a single-family house in Donelson right now. Let’s say the house you are buying is going to be $425,000.

Based on the most average type of deal for this price point, you will probably be looking at something along these lines:

Earnest Money: 1%, which is $4,250

Down Payment: In this example, we are putting down 10%, which is $42,500 (but you will already have put 1% toward EM, so you will owe 9% at closing, which is $38,250). You may choose to put down 3%, 20%, or another number depending on your financial picture.

Home Inspection: Anywhere from about $500-$2,000 (generally speaking) in home inspections, depending on how many inspections are required. The general home inspection may lead to other inspections by licensed individuals such as a roof inspection, sewer scope, electrical, etc. Usually, for a single-family home, the inspections are in the $1,200 range, but I will use the $2,000 to be conservative.

Closing Costs: Let’s say they come out to 3%, which is $12,750.

Total: $57,250 cash out of pocket.

Now, again, the deal may be structured such that the sellers chip in for closing costs. But the point is, this is a pretty typical snapshot of how things could look given the scenario I’ve laid out above.

I would love to hear any follow-up questions, and/or for you to submit questions about topics you would like me to write about going forward.

Email me at [email protected]

Thanks for reading and have a beautiful rest of your day!

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