If youre planning to buy a home, knowing what to budget for and how to save may sound scary at first. But it doesnt have to be. One way to take the fear out of budgeting is understanding some of the costs you might encounter. And to do that, turn to trusted real estate professionals. They can help you plan your finances and prepare your budget.
Here are just a few costs experts say you can expect.
1. Down Payment
Saving for your down payment is likely top of mind as you set out to buy a home. But do you know how much youll need to save? While each situation is different, theres a common misconception that putting 20% down toward your purchase is required. An article from the Mortgage Reports explains why thats not always the case:
The idea that you have to put 20% down on a house is a myth. . . . The right amount depends on your current savings and your home buying goals.
To understand your options, partner with a trusted real estate professional to go over the various loan types, down payment assistance programs, and what each one requires.
2. Closing Costs
Make sure you also budget for closing costs, which are a collection of fees and payments made to the various people involved in your transaction. Bankrate explains:
Closing costs are the fees you pay when finalizing a real estate transaction, whether youre refinancing a mortgage or buying a new home. These costs can amount to 2 to 5 percent of the mortgage so its important to be financially prepared for this expense.
The best way to understand what youll need at the closing table is to work with a trusted lender. They can provide you with answers to the questions you might have.
3. Earnest Money Deposit
If you want to cover all your bases, you can also consider saving for an earnest money deposit (EMD). An EMD is money you pay as a show of good faith when you make an offer on a house. According to realtor.com, its usually between 1% and 2% of the total home price.
This deposit works like a credit. Its not an added expense its paying a portion of your costs upfront. Youre using some of the money you already saved for your purchase to show the seller youre committed and serious about their house. Realtor.com describes how it works as part of your sale:
It tells the real estate seller youre in earnest as a buyer, . . . . Assuming that all goes well and the buyers good-faith offer is accepted by the seller, the earnest money funds go toward the down payment and closing costs. In effect, earnest money is just paying more of the down payment and closing costs upfront.
Keep in mind, an EMD isnt required, and it doesnt guarantee your offer will be accepted. Its important to work with a real estate advisor to understand whats best for your situation and any specific requirements in your area. Theyll help you determine what moves you should make in the homebuying process to have the greatest success.
Bottom Line
Budgeting for your home purchase doesnt have to be scary. Lets connect so youll have an expert on your side to answer any questions you have along the way.
