When you decide you are ready to jump into the realm of homeownership, it’s easy to get overwhelmed. You may feel like you don’t know where to start or even how to begin the process. One of the first areas you should explore is your finances. Here are three financial goals to set if you want to buy a home:
#1 Loan Related Costs
Some loans allow you to roll closing costs into the loan and others don’t. In some circumstances it’s also possible to negotiate for a seller to pay all or a portion of your closing costs. You will also want to be sure you save enough to cover the cost of the appraisal and any inspections you will need to have performed once you are under contract.
#2 Earnest Money
Earnest money is an agreed upon amount that is held in escrow once you go under contract on a home. It’s used to show the seller you are a serious buyer and offers a certain amount of security to the seller if you back out on a deal. But don’t worry, there are protections for you too. Your agent will discuss with you certain contract contingencies that allow you to walk away from a deal within certain set time frames for specific reasons.
One common contingency would cover the home inspection period and let you exit the contract if the home inspection uncovered unexpected issues with the home. Veterans using their VA loan benefit also have a contingency that protects their earnest money in the event the home appraises lower than the contract price. Earnest money deposits can vary based on your market and the home price. Ask your real estate agent for an estimated number so you know how much to save.
#3 Down Payment
There are a lot of mortgage options out there for you to consider. FHA loans require 3.5% down payments. Conventional mortgages usually require at least 5% down, and you’ll need to put 20% down if you want to avoid private mortgage insurance. If you are a Veteran or are currently serving you should look into the VA loan which doesn’t have a down payment requirement at all. Depending on the loan product you decide is best for you, you need to establish a savings goal to cover the down payment required. Also know that you can put your earnest money towards your down payment (or other loan related fees) at closing.
If you are thinking about moving and taking part in the American Dream of Homeownership give me a call! I’ll talk you through what to expect and help you create a plan for success.