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 ensure you understand some of the costs you may encounter upfront. And to do that, always turn to trusted real estate professionals. They can help you set a plan and take a strategic look at your budget and your process before you even get started.
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 differs, 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.”
In New York City, most cooperatives and condos will require 20% down. Some cooperatives will require more than 20%, and some need ALL cash to purchase a unit in the building.
To understand your options, partner with trusted real estate professionals to review the various loan types, down payment assistance programs, and what each requires. The more you know ahead of time, the easier the process will be.
2. Closing Costs
Ensure you also budget for closing costs, a collection of fees, and payments 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 2 to 5 percent of the mortgage so it’s important to be financially prepared for this expense.”
Additionally, cooperatives and condo boards have their own closing costs requirements.
- The seller generally pays Flip Tax; however, some buildings require the buyer to pay a fee to build the building’s coffers.
- Move-in and Move-out Fees
- Processing and Credit Check Fees
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, consider saving for an earnest money deposit (EMD). An EMD is money you pay as a show of good faith when you offer a home. According to Realtor.com, it’s usually between 1% and 2% of the total home price. In New York City, 10% is customary.
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.”
Remember, an EMD isn’t required and doesn’t guarantee your offer will be accepted. Working with a real estate advisor is essential 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.
Key Takeaway
When buying a home, being informed about what to save for is key. Let’s connect so you’ll have an expert to answer any questions you have along the way.
Other educational articles about the market and your home search are under Karen’s Blog. Additionally, explore the search bar for other topics of interest.
