When it comes to buying a home, knowing how much you need to save and where to get that information might be frightening. However, you should be aware that you are not expected to have all of the answers. Many reputable pros can assist you in gaining a better understanding of your finances and what you'll need to budget for during the process.

Here are a few things experts recommend you plan for along the way to get you started.

1. Making a Down Payment

Your down payment is likely already on your thoughts when you set your savings target for your purchase. And, like many others, you may believe that a down payment of 20% of the home's purchase price is required - but this isn't necessarily the case. According to the National Association of Realtors (NAR),

“One of the biggest misconceptions among housing consumers is what the typical down payment is and what amount is needed to enter homeownership. Having this knowledge is critical to know what to save . . .”

The good news is that in some cases, you may be able to put down as little as 3.5 percent (or even 0 percent). To fully comprehend your alternatives, work with a reputable specialist who can explain the various loan kinds, down payment help programs, and the requirements for each.

2. Deposit of Earnest Money

An earnest money deposit is something else you should think about. While it isn't essential, in today's extremely competitive market, it is frequent because it might help your offer stand out in a bidding war.

So, what exactly is it? When you make an offer on a house, you pay a deposit as a demonstration of good faith. This deposit functions similarly to a credit. You're utilizing some of the money you've previously set aside for your purchase to demonstrate to the seller that you're serious about buying their home. It's not an extra cost; it's just paying a portion of it up front. What it is and how it works is explained by First American:

“The deposit made from the buyer to the seller when submitting an offer. This deposit is typically held in trust by a third party and is intended to show the seller you are serious about purchasing their home. Upon closing the money will generally be applied to your down payment or closing costs.”

To put it another way, an earnest money deposit may be the first check you make toward your purchase. The amount varies depending on the state and circumstance. According to Realtor.com,

“The amount you’ll deposit as earnest money will depend on factors such as policies and limitations in your state, the current market, what your real estate agent recommends, and what the seller requires. On average, however, you can expect to hand over 1% to 2% of the total home purchase price.”

Work with a real estate advisor to learn about any local restrictions and what other purchasers in your market have recommended. They'll assist you in determining whether or not it's a viable alternative for you.

3. Costs of Closing

The following item to consider is your closing costs. Closing costs are defined by the Federal Trade Commission (FTC) as follows:

“The upfront fees charged in connection with a mortgage loan transaction. …generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.”

The expenses for numerous people and services involved in your transaction are essentially covered by your closing costs. The National Association of Realtors has this to say about how much to budget for:

“A home costs more than just the sale price. For example, closing costs—which make up about 2% to 5% of the home’s purchase price—are a major added expense…Lenders provide a Closing Disclosure at least three business days prior to closing on a mortgage. But buyers will need to budget for these added costs ahead of time to avoid sticker shock days before closing.”

The essential point is that smart buyers budget for these costs ahead of time so they can go into the process prepared. Freddie Mac puts it succinctly:

“If you’re in the market to buy a home, your down payment is probably top of mind. And rightly so – it’s likely the biggest cost of homebuying. However, it is not the only cost and it’s critical you understand all your expenses before diving in. The more prepared you are for your down payment, closing and other costs, the smoother your homebuying journey will be.”

Conclusion

It's critical to know what to budget for when buying a property. Let's connect so you have trusted information on what to expect when you buy a property and to ensure you understand these and any other fees that may arise.