How Much Money Do you need to Buy Real Estate?
How Much Money Do you need to Buy Real Estate?
How Much Money Do you need to Buy Real Estate?
A top question heard from home buyers is “How much cash do I need?” Unfortunately, there is not a one size fits all answer to this question. There are variants to each transaction, such as sales price and financing source, etc. However, in general, the following are things you will need to budget for during your real estate purchase:
How much down payment? Well, it depends! Many folks think that you have to have a 20% down payment to buy a house. It’s great if you do, but if you don’t, there are other options. There are many loan programs with no money down or low down payment options. Talk to your lender about your options—there are many to choose from.
How much for deposit and option fee? Well, once again, it depends. An earnest money deposit is a sign of the buyer’s good faith intentions to purchase the property—kind of similar to a “security deposit” when renting. The money is held in trust by the title company until closing. The earnest money deposit is paid once the contract is accepted, so you must have the money in hand. The Option Period is the time during which the buyer has an unrestricted right to terminate the contract, and is typically when home inspections and any repair quotes are completed. The buyer must pay for an option period, but it is typically credited back if the buyer completes the purchase. Both the earnest money deposit and the option fee can vary, as it is negotiable between buyer and seller, so every transaction is different in terms of dollars.
How much are closing costs? Closing costs will vary depending on your financing and Title Company. If you are getting a loan, your lender will give you an estimate of closing costs on the front end. These closing costs can include (but not limited to): credit report, origination fees, survey, appraisal, inspections, insurance, tax proration, misc. prepaids, attorney fees, title fees, etc. It is a long list of associated costs, but don’t freak out just yet! It may be possible to add some or all of the closing costs into the purchase price or through seller assistance during negotiations. Discuss your needs with your Realtor® and lender early in the process so they can help you negotiate a deal that suits your financial situation.
So…how much is it? If you’ll notice, the true answer to this is “it depends.” I know this seems annoyingly vague, but every situation is different, so there is not a one size fits all answer. To simplify it as a generalized percentage can be misleading, because it depends on what is negotiated into the contract. However, once your financing is lined up, you can get a more accurate number. Getting pre-approved and speaking to your Realtor early on can help you prepare and budget for the “bills” that will be coming due during your transaction and at what stage they will be due. After all, you can never plan ahead too much!
Lisa E. Priest likes to plan ahead and is a Broker with Picket Fence Realty, Inc. You can reach her via phone or text at 903-948-3343 or read more at BuyPalestine.com.
