Figuring out how much to budget for buying a home can seem daunting, but it doesn’t have to be. By learning about the potential costs you'll face at the beginning, you can gain confidence and take charge of the process.

1. Down Payment

Saving for your down payment is probably something you're thinking about a lot. But have you considered how much you actually need? A common belief is that a 20% down payment is a must, but that's not always true. Unless your loan type or lender specifically requires it, you don't have to put down that much. There are home loan options available where you can put down as little as 3.5% or even 0%.

““The amount you need to put down will depend on a variety of factors, including the loan type and your financial goals. If you don’t have a large down payment saved up, don’t worry—there are plenty of options available . . .”
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— Quote Source

A reliable lender will discuss the different types of loans available, along with any down payment requirements and possible assistance programs you might be eligible for. Having this knowledge in advance can simplify the process for you. The best way to gather the necessary information is to collaborate with a professional who can help determine what suits your situation best.

2. Closing Costs

Don't forget to include closing costs in your budget. These costs cover a variety of fees and payments that go to the different parties involved in your transaction. Bankrate provides a detailed explanation of what to expect.

““Mortgage closing costs are the fees associated with buying a home that you must pay on closing day. Closing costs typically range from 2 to 5 percent of the total loan amount, and they include fees for the appraisal, title insurance and origination and underwriting of the loan.”
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— Bankrate

A reliable lender can help you understand the details of closing costs and address any questions you might have. They can also provide a clearer picture of what you should expect to pay, allowing you to approach your closing with confidence.

As you get ready for closing day, remember to include your real estate agent's professional service fee in your budget, especially if the seller doesn’t cover it. The good news is that you’ll collaborate with your agent beforehand to come to an agreement on this fee, so there won’t be any surprises at the end.

3. Earnest Money Deposit

If you want to be thoroughly prepared, think about setting aside some funds for an earnest money deposit (EMD). As reported by Realtor.com, the EMD usually ranges from 1% to 2% of the home's total price. This deposit is essentially your

It’s not actually an extra cost; it functions more like a credit that offsets some of your initial expenses. You’re just tapping into the funds you’ve set aside for your purchase to demonstrate to the seller that you’re serious and committed to buying their home. Realtor.com explains how this 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.”
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— Realtor.com

Just remember, this isn’t a must for your offer, and it doesn’t mean your offer will definitely be accepted. It's really crucial to team up with a real estate advisor who can help you figure out the best approach for your unique situation and any specific local requirements. They’ll guide you on the right steps to take, ensuring you make informed decisions during the buying process.

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