• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Discover Contra Costa

Discover Contra Costa

with Noelle Cummings, REALTOR®/REALTIST®

  • Home
  • Buyers
    • Advanced Search
    • New Construction Home Search
    • Guidebook for Buyers
    • User Signup
    • User Login
  • Sellers
    • Home Valuation
    • Guidebook for Sellers
  • Communities
  • The Key to Your Home Blog
    • Buyer Tips
    • Seller Tips
    • Homeowner Tips
    • Market Updates
    • Real Estate News
  • Contact Noelle

What You Need to Budget for When Buying a Home

05/09/2022 by Noelle Cummings Leave a Comment

It can feel intimidating to know how much you need to budget and where to find that information when it comes to buying a home. 

But you should know that no one expects you to have all the answers yourself. There are many trusted professionals who can help you understand your finances and what you’ll need to budget for throughout the process.

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

1. Down Payment

As you set your savings goal for your purchase, your down payment is likely already top of mind. And, like many other people, you may believe you need to set aside 20% of the home’s purchase price for that down payment – but that’s not always the case. For example, the National Association of Realtors (NAR) says:

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 you may be able to put as little as 3.5% (or even 0%) down in some situations. To understand your options, partner with a trusted professional who can go over the various loan types, down payment assistance programs, and what each one requires.

2. Earnest Money Deposit

Another item you need to plan for is an earnest money deposit. While it isn’t required, it’s common in today’s highly competitive market because it can help your offer stand out in a bidding war.

So, what is it? It’s money you pay as a show of good faith when you make an offer on a house. This deposit works like a credit. 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. It’s not an added expense; it’s just paying some of that upfront. First American explains what it is and how it works:

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.”

In other words, an earnest money deposit could be the very first check you’ll write toward your purchase. But, of course, the amount varies by state and situation. Realtor.com elaborates:

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 understand any requirements in your local area and what they’ve recommended for other buyers in your market. Then, they’ll help you determine if it’s something that could be a useful option for you.

3. Closing Costs

The next thing to plan for is your closing costs. The Federal Trade Commission (FTC) defines closing costs as:

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.”

Basically, your closing costs cover the fees for various people and services involved in your transaction. NAR 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 key takeaway is that savvy buyers plan for these expenses to come into the process prepared. Freddie Mac sums it up like this:

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.”

Bottom Line

Knowing what to budget for in the home buying process is essential. To make sure you understand these and any other expenses that may come up, let’s connect, so you have reliable expertise on what to expect when you buy a home.

  • Share on Twitter Share on Twitter
  • Share on Facebook Share on Facebook
  • Share on Pinterest Share on Pinterest
  • Share on LinkedIn Share on LinkedIn
  • Share via Email Share via Email

Filed Under: Buyer Tips, Homeowner Tips

About Noelle Cummings

Raised in Walnut Creek, Noelle Cummings understands and appreciates the many unique benefits of living in the Bay Area - with its unmatched beauty, culture, shopping, and marvelous restaurants!

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Call Now:

925-768-3617

Connect with Me:

  • Facebook
  • Instagram
  • LinkedIn
  • YouTube

Oh hi there 👋
It’s nice to meet you.

Sign up to receive awesome content in your inbox, every month.

I don’t spam! Read my privacy policy for more info.

Please check your inbox or spam folder to confirm your subscription. Thanks!

Categories

  • Buyer Tips
  • Homeowner Tips
  • Market Updates
  • Real Estate News
  • Seller Tips

Footer

Noelle Cummings
Realtor®/Realtist® | Cal DRE #01333246
Cell: 925-768-3617

Connect with me:

  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • YouTube

Contact Me:

Thank you for reaching out! I will be in touch just as soon as possible. If you'd like to reach me right away, feel free to call or text me at 925-768-3617. I look forward to talking to you soon!

Copyright © 2022 · Agent Focused Pro by Winning Agent · Log in

Realty One Group ELITE – Walnut Creek

200 Pringle Avenue, Suite 100 | Walnut Creek, CA 94596

925-978-1100

CA DRE# 01931601

 

Privacy Policy