What You Should Budget When Buying a Home
When it comes to buying a home, it can feel a bit intimidating to know how much you need to save and where to find that information.
Here’s are a few tips experts say you should plan for along the way.
1. Down Payment
You may believe you need to set aside 20% of the home’s purchase price for that down payment – but that’s not always the case. The National Association of Realtors (NAR) says:
“One of the biggest misconceptions among housing consumers is what the typical down payment is and what amount is needed to enter homeownership. Having this knowledge is critical to know what to save . . .”
The good news is, you may be able to put as little as 3.5% down in some situations.
2. Earnest Money Deposit
The earnest money (EMD) deposit is common in today’s highly competitive market because it can help your offer stand out in a bidding war.
It’s money you pay as a show of good faith when you make an offer on a house. It’s not an added expense, it’s just paying some of that up front which in the end goes toward your down payment. First American explains what it is and how it works:
“The deposit made from the buyer to the seller when submitting an offer. This deposit is typically held in trust by a third party and is intended to show the seller you are serious about purchasing their home. Upon closing the money will generally be applied to your down payment or closing costs.”
In other words, an earnest money deposit could be the very first check you’ll write toward your purchase. The amount varies by state and situation. Work with a real estate advisor to understand any requirements in your local area. They’ll help you determine if it’s something that could be a useful option for you.
3. Closing Costs
Your closing costs cover the fees for various vendors and services involved in your transaction. NAR has this to say about how much to budget for:
“A home costs more than just the sale price. For example, closing costs—which make up about 2% to 5% of the home’s purchase price—are a major added expense…Lenders provide a Closing Disclosure at least three business days prior to closing on a mortgage. But buyers will need to budget for these added costs ahead of time to avoid sticker shock days before closing.”
Bottom Line
Knowing what to budget for in the homebuying process is essential. To make sure you understand these and any other expenses that may come up, let’s connect so you have reliable source on what to expect when you buy a home.