If you’re in the market for a new home, it can be intimidating to know how much you need to save and what the money will go toward.
Downpayment
The down payment is usually the first thing people think of, and though most people think they have to set aside 20% of the purchase price, that’s not always the case.
According to the National Association of Realtors, potential homebuyers may be able to put down as little as 3.5% -- or even 0%. Working with an experienced and trusted real estate agent can help you navigate your options and decide which avenue is best for you.
Earnest Money
You’ll also want to budget money for an earnest money deposit. While a certain percentage of the purchase price isn’t required, it’s become more common in the current extremely competitive housing market to put at least 2% down because a larger deposit will help you stand out from other potential buyers.
It’s money you pay as a show of good faith when you make an offer on a house and it shows the seller you are a serious buyer. It also goes toward the cost of the house at closing and isn’t an added expense.
Closing Costs
Next there are closing costs. The Federal Trade Commission defines closing costs as the upfront fees charged in connection with a mortgage loan transaction – usually including the loan origination fee, title examination and insurance, attorney’s fees, escrow deposits for taxes and a survey.
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, it’s crucial to work with an experienced and trusted real estate agent.