Knowing what to budget for when buying a home may feel intimidating. It doesn’t have to be. By understanding the costs you may encounter upfront, you can take control of the process.
Here are just a few things experts say you should be thinking about as you plan ahead.
1. Down Payment
Saving for your down payment is likely top of mind. But how much do you really need? A common misconception is that you have to put down 20% of the purchase price. But that’s not necessarily the case. Unless it’s specified by your loan type or lender, you don’t have to. There are some home loan options that require as little as 3.5% or even 0% down.
A trusted lender will go over the various loan types with you, any down payment requirements, and down payment assistance programs you may qualify for. The more you know ahead of time, the easier the process will be. And the key to getting the information you need is working with a pro to see what will work best for your situation.
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.
When it comes to closing costs, a trusted lender can guide you through specifics and answer any questions you may have. They can also give you a better idea of how much you should be prepared to pay so you can cruise through your closing with confidence.
And as you plan ahead for closing day, be sure to budget for your real estate agent’s professional service fee in case the seller doesn’t cover it. Work with your agent ahead of time to agree on what this is.
3. Earnest Money Deposit
And if you want to cover all your bases, you can also consider saving for an earnest money deposit. According to Realtor.com, an EMD is typically between 1% and 2% of the total home price. It is money you pay as a show of good faith when you make an offer on a house.
But, it’s not an added expense. Instead it works like a credit and goes toward some of your upfront costs. You are simply using some of the money you have already saved for your house.
Keep in mind, this isn’t required. 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 local area. I will advise you on what moves you should make so you can make the best possible decisions throughout the buying process.