If you’re planning to buy a home, knowing what to budget for and how to save may sound scary
at first. But it doesn’t have to be. One way to take the fear out of budgeting is to understand
some of the costs you might encounter. And to do that, turn to trusted real estate
professionals. They can help you plan your finances and prepare your budget.
at first. But it doesn’t have to be. One way to take the fear out of budgeting is to understand
some of the costs you might encounter. And to do that, turn to trusted real estate
professionals. They can help you plan your finances and prepare your budget.
Here are just a few costs experts say you can expect.
1. Down Payment
Saving for your down payment is likely at the top of your mind as you set out to buy a home. But do you
know how much you’ll need to save? While each situation is different, there’s a common
misconception that putting 20% down toward your purchase 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 a trusted real estate professional to go over the
various loan types, down payment assistance programs, and what each one requires.
2. Closing Costs
Make sure you also budget for closing costs, which are fees and payments made to the various
people 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 2 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 a 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 already saved for your purchase to show the
seller you’re committed and serious about 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 seller accepts the buyer’s good-faith offer, the earnest money funds go toward the down payment
and closing costs. In effect, the earnest money is just paying a portion 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 area. They’ll help you determine what moves you should
make to have the greatest success in the home-buying process.
Bottom Line
Budgeting for your home purchase doesn’t have to be scary. Let’s connect so you’ll have an
expert Detroit Realtor on your side to answer any questions you have along the way