If you're planning to buy a home, knowing what to budget for and how to save may sound scary at first. But it doesn't have to be. One way to take the fear out of budgeting is to understand some of the costs you might encounter. And to do that, you should turn to a trusted real estate professional. 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 to be at the top of your mind as you set out to buy a home. But do you know how much you'll need to save? While each situation is different, there's a common misconception that putting 20% down towards your purchase is required. An article from the Mortgage Reports explains 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."
To understand your options, partner with a trusted real estate professional and a mortgage broker 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 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."
The best way to understand what you'll 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 that 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 works like a credit. It's not an added expense - it's paying a portion of your costs upfront. You're using some of the money you already saved for your purchase to show the seller you're committed to and serious about their house. 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, the earnest money is just paying more of the down payment and closing costs upfront."
Keep in mind, an EMD isn't required, and it doesn't guarantee your offer will be accepted. It's important to work with a real estate advisor to understand what's best for your situation and any specific requirements in your area. They'll help you determine what moves you should make in the home-buying process to have the greatest success.
Bottom Line
Budgeting for your home purchase doesn't have to be scary. Partner with me today so you'll have an expert on your side to answer any questions you have along the way.
source: KCM, Mortgage Reports, Bankrate, realtor.com
Disclaimer: The above information is from sources believed reliable but should not be relied upon without verification. The publisher assumes no responsibility for its accuracy. You are encouraged to get independent legal advice before commencing any transaction.
