Knowing what to budget for when buying a home can feel overwhelming, but it doesn’t have to be. By understanding the key costs you may encounter upfront, you can take control of the process and avoid unexpected surprises. According to industry experts, here’s a breakdown of what you need to save for.
1. Down Payment
Saving for your down payment is likely the first thing on your mind. But how much do you need? A common misconception is that you must put down 20% of the purchase price. However, that’s not always the case. Depending on your loan type and lender, you may only need 3.5% or even 0% down.
According to The Mortgage Reports,
“The amount you need to put down will depend on various 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.”
A trusted lender will walk you through different loan types, down payment requirements, and any down payment assistance programs you might qualify for. The more informed you are, the smoother your homebuying journey will be.
2. Closing Costs
Beyond your down payment, you’ll also need to budget for closing costs. These are fees and payments made to various parties involved in your home purchase. According to Bankrate:
“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% of the total loan amount and include fees for the appraisal, title insurance, and the origination and underwriting of the loan.”
A trusted lender can provide clarity on these costs and help you estimate what to expect. Don’t forget to budget for your real estate agent’s commission as well, in case the seller doesn’t cover it. You’ll work with your agent ahead of time to understand this fee, so there won’t be any surprises.
3. Earnest Money Deposit (EMD)
To show you’re serious about purchasing a home, you may need to set aside money for an earnest money deposit (EMD). According to Realtor.com, an EMD typically ranges from 1% to 2% of the home’s price. This deposit is a sign of good faith when making an offer.
However, it’s important to note that earnest money isn’t an added expense. It acts as a credit toward your down payment and closing costs. As Realtor.com explains:
“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.”
While an EMD is not required, it can strengthen your offer. Work with a real estate advisor to determine if an earnest money deposit is right for your situation.
Bottom Line
The key to a successful homebuying savings strategy is understanding what you need to budget for. When you know what to expect, you can plan and avoid surprises. With the help of an expert real estate agent and a trusted lender, you’ll have the guidance you need to move forward with confidence. Ready to start your homebuying journey? Connect with me today and let’s make your dream of homeownership a reality!
