The costs of buying a home come in these three big waves

Many millennials want to buy a home because they know it can be cheaper than renting. Truth be told, however, buying is complicated, and it’s not easy to figure out how much money you’ll need.

The costs come in three waves:

■ Before purchase

■ Down payment

■ Origination and closing costs

Before purchase

The most common before-purchase expense is a home inspection, which usually costs about $500 and is almost always paid upfront. The inspector prepares a written report about the home, so you’ll understand its current condition and any defects it might have.

This report is an out-of-pocket expense, regardless of whether you buy the home, says Jay Dacey, a mortgage broker at Metropolitan Financial Mortgage Co. in Minneapolis.

Additional inspections for wood-destroying insects, unhealthy molds, geological hazards, drainage problems or other issues can add additional pre-purchase costs. A real estate broker can refer you to inspectors who can tell you how much they charge.

Other before-purchase fees can include a credit check and appraisal of the home’s value. A credit check usually costs about $30. An appraisal costs at least several hundred dollars or more, depending on the property’s value.

Some mortgage companies collect the credit check and appraisal fees upfront. Others will pay these fees for you, sometimes with the expectation of being reimbursed at closing.

You also could be charged a loan application fee.

Down payment

Dacey says most buyers who choose a conventional loan need a 5 percent down payment, although some qualify with only 3 percent. Federal Housing Administration loans have minimum down payments of 3.5 percent.

What is a down payment? This is the money from your savings that you give to the home’s seller. A mortgage pays the rest of the purchase price. It’s usually expressed as a percentage: On a $100,000 home, a $13,000 down payment would be 13 percent. The mortgage would be for the remaining $87,000.

Most low-down payment loans require mortgage insurance, which you’ll pay monthly along with your mortgage payment. Mortgage insurance protects your lender if you don’t repay your loan.

“Incurring those costs over time means a lot of millennials are able to buy a home who otherwise wouldn’t or (who can) buy sooner,” says Karen Carr, a financial planner with Society of Grownups, a financial planning firm in Boston.

A VA loan, guaranteed by the U.S. Department of Veterans Affairs, doesn’t require a down payment or mortgage insurance, but borrowers pay a funding fee. The amount depends on your type of service, down payment percentage and other factors. In some cases, this fee can be waived.

Origination and closing costs

Unless you buy a home for cash, you’ll have to pay certain fees to obtain financing.

Examples include:

■ Appraisal

■ Mortgage origination charges

■ Underwriting fees

■ Flood zone determination fee

■ Title search and title insurance

■ Escrow or settlement charges

■ Recording fees

■ Transfer taxes

■ Owner’s title insurance

Dacey says you can try to negotiate for the seller to pay some of your closing costs for you. That can make your costs more manageable so you won’t have to save as much to buy.

You’ll also have to pay a portion of your homeowner insurance premium, some prepaid interest and your first mortgage insurance premium at closing.

The best way to get an accurate estimate of all the closing costs is to consult a loan officer, says Ronit Rogoszinski, wealth advisor at Arch Financial Group in Garden City, New York.

“Go and have that conversation with someone who can look at your expenses and income and give you real numbers as what you would qualify for,” Rogoszinski says.

Ask for a Loan Estimate form, which will show all the costs you can expect to pay. This form also explains which costs can vary and which can’t.

Be mindful that your budget as a first-time buyer might not stretch as far as you’d like.

“It’s a real wakeup call to a lot of (millennials) that where they want to be isn’t necessarily where they can afford to buy,” Rogoszinski says. “That opens up a whole other can of worms as far as: ‘Do I stay where I am or look for other options?’”

Don’t forget to include moving costs and new furniture in your homebuying budget, too.