One of the most common questions that home buyers want to know is: “How much money do I need?” Of course, it will vary with each transaction, as the purchase price and other details will depend on the source of financing. Unfortunately, there is not a one size fits all answer to this question. Without knowing your financing, closing costs can only be generalized. The following are things you will need to budget for during your real estate purchase:
There is a common misconception that 20% down is needed to buy a home. Luckily, there are many other ways to purchase a home without putting 20% down. Conventional loans start at a 5% down payment, but will depend on the lender’s minimum down payment requirements. FHA loans can be as low as 3.5% down and USDA loans are zero down (keep in mind that the property must also qualify for both of these programs.) Talk to your favorite mortgage broker or banker about your options—there are many to choose from!
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, so there won’t be any surprises. These closing costs can include: credit report, origination fees, survey, appraisal, inspections, insurance, tax proration, attorney fees, title fees, etc. It is a long list of associated costs, but don’t freak out yet! It is possible to roll some or all of the closing costs into the purchase price or through seller assistance during negotiations. If you are paying cash, closing costs are very minimal. Discuss your needs with your Realtor® and lender early in the process so they can help you get a game plan that suits your situation.
The earnest money deposit is a sign of the buyer’s good faith intentions to purchase the property—kind of like a “security deposit,” if you will. The money is held in trust by a neutral third party (the title company) until closing. The amount is negotiable between buyer and seller and is credited to the buyer at closing.
The Option Period is the time during which the buyer has an unrestricted right to terminate the contract, without penalties, for any reason. Of course, this isn’t free. The buyer must pay for this luxury, but it is typically credited back if the buyer follows through with the purchase. The option fee and length are both negotiable but are typically 3-10 days and a relatively small dollar amount. Optimally, all due diligence needs to be completed within this period—any inspections, contractor quotes, etc. If the buyer decides to terminate the contract during the option period, the option fee will be lost but the earnest money is refunded.
So, how much money do you need? To answer your question, I don’t know exactly. Well, not yet anyway. To simplify it as a generalized “3%” can be far from accurate, depending on the sales price. However, once your financing is secured, all will be revealed. You can see why it is so important to get preapproved and discuss each cost with your representatives, so you’re ready to close on that home sweet home.
Lisa E. Priest likes to be prepared and is an East Texas REALTOR® with Picket Fence Realty, Inc. You can reach her via phone or text at 903-948-3343 or read more at BuyPalestine.com.
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