Buying a home can feel like a big leap—and figuring out what to budget for might seem a little overwhelming. But don’t worry! With some upfront knowledge and planning, you’ll be ready to tackle the process like a pro. Let’s break it down and keep things simple.
Here are a few key things you should be thinking about while you plan your homebuying journey:
1. The Down Payment
Let’s talk about the big one first: the down payment. You’ve probably heard the classic “20% of the purchase price” rule, but here’s the good news: it’s not a hard-and-fast requirement! Depending on the type of loan you qualify for, you might be able to get away with as little as 3.5% or even 0% down. Amazing, right?
An article from The Mortgage Reports explains it perfectly:
“The amount you need to put down will depend on a variety of factors, including the loan type and your financial goals. If you don’t have a large down payment saved up, don’t worry—there are plenty of options available . . .”
This is where a trusted lender comes in. They’ll walk you through different loan options, help you figure out the down payment requirements, and even connect you with assistance programs you might qualify for. Think of them as your down-payment guide on this adventure.
2. Closing Costs
Next up: closing costs. These are the fees and payments you’ll need to cover on closing day to seal the deal. Bankrate breaks it down like this:
“Mortgage closing costs are the fees associated with buying a home that you must pay on closing day. Closing costs typically range from 2 to 5 percent of the total loan amount, and they include fees for the appraisal, title insurance, and the origination and underwriting of the loan.”
Your lender can give you a better sense of how much to budget for and answer any questions you might have. And here’s a pro tip: don’t forget to plan for our buyer brokerage service fee, just in case the seller doesn’t cover it. (Don’t worry, we’re going to make sure you know exactly what to expect, and negotiate hard to lower your costs!)
3. Earnest Money Deposit
Ever heard of an earnest money deposit (EMD)? It’s basically your way of saying, “Hey, I’m serious about buying this house!” This is typically 1% to 2% of the home’s purchase price, and you’ll put it down when you make an offer. Think of it as a good-faith gesture to the seller.
But don’t stress—this isn’t extra money you need to come up with. It’s actually credited toward your down payment or closing costs later on. As Realtor.com puts it:
“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.”
That said, earnest money isn’t always required, and it doesn’t guarantee your offer will be accepted. A great real estate advisor will help you figure out whether it makes sense for your situation and guide you through all the details.
Bottom Line
When it comes to buying a home, knowledge is power (and savings!). By knowing what expenses to plan for—like your down payment, closing costs, and maybe an earnest money deposit—you’ll be in great shape to navigate the process with confidence. With the right team—that’s me, my staff and one of our amazingly expert and helpful lenders—you’ll have all the tools you need to make your homeownership dreams come true. You’ve got this!
