Knowing what to budget for and how to save when buying a home may sound intimidating, but it does not have to be. One way to overcome those fears is to be aware of some of the costs you may face up front. And for that, always rely on reputable real estate professionals. They can assist you in developing a strategy and taking a strategic look at your budget and process before you begin.
Here are a few things experts recommend you think about.
1. Down Payment
Saving for a down payment is most likely at the top of your priority list as you prepare to buy a home. But do you know how much you will need? While every buyer's situation is unique, it is a common misconception that a 20% down payment is required. An article from the Mortgage Reportsexplains why that’s 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.”
Partner with trusted real estate professionals to go over the various loan types, down payment assistance programs, and what each one requires. The more prepared you are, the easier the process will be.
2. Closing Costs
Make sure you also budget for closing 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 you’re refinancing a mortgage or buying a new home. These costs can amount to 2 to 5 percent of the mortgage so it’s important to be financially prepared for this expense.”
Working with a reputable lender is the best way to determine what you will require at the closing table. They can answer any questions you may 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, it’s usually between 1% and 2% of the total home price.
This deposit functions similarly to a credit. It is not an additional cost; rather, it is the payment of a portion of your costs in advance. You are using some of the money you have already saved for the purchase to demonstrate to the seller that you are serious about purchasing their home. Realtor.com describes how it works as part of your sale:
“It tells the real estate seller you’re in earnest as a buyer . . . Assuming that all goes well and the buyer’s 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.”
Remember that an EMD is not required, and it does not guarantee that your offer will be accepted. Working with a real estate advisor to understand what is best for your situation and any specific requirements in your local area is essential. They will advise you on what steps to take so that you can make the best decisions possible throughout the buying process.
Knowing what to save for is essential when thinking about buying a home. Let us connect so you can have an expert on your side to answer any questions you may have along the way.