Taking the Fear out of Saving for a Home
If you’re planning to buy a home, knowing what to budget for and how to save may sound scary at first. It doesn’t have to be. One way to take the fear out of budgeting is understanding some of the costs you might encounter.
Here are just a few costs you can expect.
1. Down Payment
While each situation is different, there’s a common misconception that putting 20% down toward 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.”
Along with the down payment, there are other important costs to keep in mind when budgeting
2. Earnest Money Deposit
An EMD or Earnest Money Deposit 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 works like a credit. It’s not an added expense – it’s paying a portion of your costs upfront. 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.”
Keep in mind, an EMD isn’t required, and it doesn’t guarantee your offer will be accepted. If you choose to work with a real estate advisor they’ll help you decide what’s best for your situation and any specific requirements in your area.
3. Closing Costs
Lastly, be mindful of 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.”.
Bottom Line
Budgeting for your home purchase doesn’t have to be scary. If you have any questions along the way, let’s connect.