Most potential home buyers know the more significant expenses when buying a house: the down payment and closing costs. However, buyers might not know about smaller one-time and recurring costs. How much you need saved to buy a home depends on the home’s location, price, how much you can afford for a down payment, and how big a mortgage you’d like to take on.
“The more you save, the better it will make your circumstances,” says Tristain O’Donnell, real estate advisor at Engel & Völkers in Atlanta. “For example, a larger down payment may help you push your budget up more” when calculating how much house you can afford.
The Upfront Costs of Buying a House
Buying a home requires a long-term commitment to monthly expenses, but the most significant bills come due soon after the seller accepts your offer. Make room in your budget to cover these one-time upfront costs.
Earnest Money
One customary upfront cost that can protect you when purchasing a home is earnest money. Plenty can go awry after you sign a purchase and sale contract, but by depositing earnest money in an escrow account, you can show the seller your intention to follow through with the purchase.
“Earnest money is a deposit made to show the seller you’re serious about buying,” says Yancy Forsythe, Owner and Founder of Missouri Valley Homes in Carrollton, Missouri. “It typically ranges from 1% to 3% of the purchase price.”
When initiating an earnest money payment, you should establish requirements that must be met for the seller to keep your deposit. For example, if you set a contingency for the house to pass inspection and it doesn’t, you can get your deposit refunded should the home purchase fall through. However, you could lose your deposit if you fail to meet the agreement.
When you close on the sale, your earnest money deposit is applied to your down payment or closing costs.
