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Budgeting Basics for Homebuyers: What You Need to Know

Thursday, January 9, 2025   /   by Arial Davis

Budgeting Basics for Homebuyers: What You Need to Know

Buying a home is an exciting milestone, but understanding the costs involved can feel overwhelming. The good news? It doesn’t have to be! By getting familiar with the expenses you may encounter upfront, you’ll feel more in control of the process. Here’s what experts say you should plan for:


1. Down Payment


One of the first things that comes to mind when buying a home is the down payment. Many believe you need 20% of the purchase price, but that’s not always the case. Depending on your loan type, you may only need 3.5% or even 0% down.


As The Mortgage Reports explains:



“The amount you need to put down will depend on a variety of factors, including the loan type and your financial goals. If you don’t have a large down payment saved up, don’t worry—there are plenty of options available.”



A trusted lender can help you explore your loan options and even introduce you to down payment assistance programs. By working with a professional, you’ll get the clarity you need to make the best financial decision.


2. Closing Costs


Another important expense to budget for is closing costs. These are fees paid to the parties involved in your home purchase, ranging from 2% to 5% of the total loan amount. According to Bankrate:



“Mortgage closing costs are the fees associated with buying a home that you must pay on closing day. They include fees for the appraisal, title insurance, and origination and underwriting of the loan.”



Your lender will break down these costs, ensuring you’re fully prepared. It’s also wise to plan for your real estate agent’s professional service fee, which may or may not be covered by the seller. You’ll agree on this fee with your agent ahead of time, so there won’t be surprises at closing.


3. Earnest Money Deposit


An earnest money deposit (EMD) is another cost to consider. Typically 1% to 2% of the home price, EMD shows the seller you’re serious about your offer. But don’t worry—this isn’t an added expense. As Realtor.com notes:



“It tells the real estate seller you’re in earnest as a buyer . . . Assuming that all goes well and the buyer’s good-faith offer is accepted by the seller, the earnest money funds go toward the down payment and closing costs.”



Although not always required, an EMD can strengthen your offer. Consult your real estate advisor to determine what’s best for your situation.


Bottom Line


The secret to a smooth homebuying process? Being informed. By understanding these key expenses—down payment, closing costs, and earnest money deposit—you’ll be able to plan ahead and save strategically. With the guidance of a trusted agent and lender, you’ll have the confidence to navigate the journey and make your dream of homeownership a reality.

Luxe Properties | East Tennessee Real Estate
David Rowan
2916 Tazewell Pike suite D
Knoxville, TN 37918
407-493-5950

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