HOME BUYER FAQ: How much money will I have to come up with to buy a home?
Answer: It depends on several of factors, such as the price of the home, the type of mortgage you get, and what seller concessions are negotiated in your purchase agreement. In general, you will need to have enough money to cover the cost of (1) earnest money, (2) down payment, and (3) closing costs (the seller can pay all or most of your closing costs, depending on the loan).
Earnest money is the deposit you make on the home when your offer is accepted. The amount varies, but is often 1-3% of the sale price. Your earnest money will be deposited into an escrow account and held there until closing. Once the sale of the home has been completed, the earnest money you paid will be applied toward your closing costs. If you back out of the sale due to a failed contingency (eg: inspection report, failed financing), you can generally recover your earnest money in full. If you back out of the sale for reasons not covered by contingencies, you will generally forfeit your earnest money.
Before signing a purchase and sale agreement, carefully review all contingencies with your real estate agent so you understand how much earnest money you'll pay and how to successfully recover your earnest money if you need to back out of the sale. Talk to your real estate agent to learn more.
The down payment is a percentage of the cost of the home that you must pay to get your loan. Required down payments can be as low as 3% and as high at 20% or more. You will want to explore all the options so you can choose the loan program that best fits your short and long-term budget. Your agent can recommend a qualified lender who will spend the time to help you with options that fit your unique situation.
Closing costs are the fees associated with processing the paperwork for the closing as well as lender fees, and are generally around 3-4% of the purchase price of the home.
When you apply for your loan, your lender will give you an estimate of the closing costs as well as the down payment, so you will know how much money you actually need up front, so you won't be caught by surprise.
Your lender will share the information with your agent (with your permission, of course) so your agent will know how much you can pay for a home, and also be prepared to ask for seller assistance to pay for some of your closing costs, if necessary.
If you have other questions, please Contact Us. We sell thousands of homes a year to people just like you.