If you’re planning to buy a home, knowing what to budget for and how to save may sound intimidating –but it doesn’t have to be. One way to ease those concerns is to make sure you understand some of the costs you may encounter up front.
Here are just a few things experts say you should be thinking about.
1. Down Payment
Saving for your down payment is likely top of mind as you set out to buy a home. But do you know how much you’ll need? While every buyer’s situation is different, there’s a common misconception that putting 20% of the purchase price down 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 trusted real estate professionals to go over the various loan types, down payment assistance programs, and what each one requires. The more you know ahead of time, 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. 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 3 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 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’ve already saved for your purchase to show the seller you’re committed and serious about buying 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, 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 local area. They’ll advise you on what moves you should make so you can make the best possible decisions throughout the buying process.
4. Home Inspections
Once you have a binding agreement with the seller, it is important to hire an independent inspector to inspect the home you intend to purchase.
To adequately account for the type and number of inspections you choose to have done, allocate a budget of approximately $1000-2,000.
Types of inspections may include, but are not limited to the following:
1. General Home Inspection
2. Radon Inspection
3. Termite/Rodent Inspection
4. Septic Inspection
5. Air Quality Inspection
6. Mold Inspection
7. Lead-based Paint Test
You may also choose to have a survey done to adequately know your property boundaries. This will typically range between $500-$1,000 depending on the size of the property and the type of survey you have done.
Bottom Line
When buying a home, being informed about what to save for is key, and turning to trusted real estate professionals can help you set a plan and take a strategic look at your budget and your process before you even get started. Let’s connect so you’ll have an expert on your side to answer any questions you have along the way.
