If youre planning tobuy a home, knowing what to budget for and how to save may sound intimidating but it doesnt have to be. One way to ease those concerns is to make sure you understand some of the costs you may encounter up front.And to do that, always turn to trustedreal estate professionals. They can help you set a plan and take a strategic look at your budget and your process before you even get started.
Here are just a few things experts say you should be thinking about.
1. Down Payment
Saving for yourdown paymentis likely top of mind as you set out to buy a home. But do you know how much youll need? While every buyers situation is different, theres a common misconception that putting 20% of the purchase price down is required. An article from theMortgage Reportsexplainswhy 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 trusted real estate professionals to go over the various loan types, down payment assistance programs, and what each one requires. The more you know ahead of time, the easier the process will be.
2. Closing Costs
Make sure you also budget forclosing costs, which are a collection of fees and payments made to the various parties involved in your transaction.Bankrateexplains:
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 toRealtor.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 youve already saved for your purchase to show the seller youre committed and serious about buying their house.Realtor.comdescribeshow 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 local area. Theyll advise you on what moves you should make so you can make the best possible decisions throughout the buying process.
Bottom Line
When buying a home, being informed about what to save for is key. Partner with a local real estate advisor so youll have an expert on your side to answer any questions you have along the way.
