What You Need to Save in Order to Buy a Home

Down Payment

Just what is a down payment? Many people believe that you need to set aside 20% of a home's purchase price for that down payment - but that's not always the case.  There are many different mortgage programs out there, some with as little as 0% down!  Very common, especially for first time homebuyers, is the FHA mortgage, which is usually availalbe with as little as 3.5% down.  Many cities and towns also offer grant programs for first time buyers, too.  Different types of mortgages have varying terms and interest rates, which of course can change over time, including just during the time you're out looking for a home.  So be sure to work with a trusted, experienced loan officer and company to be sure all your options are fully explaind to you.

Earnest Money Deposit

Another item you need to keep in mind when budgeting to buy a home is the earnest money deposit.  This deposit is a show of good faith when you make an offer on a house.  In Massachusetts, you make an initial deposit when making an offer on a proerty.  After you sign the actual Purchase & Sale document you will make a second deposit.  These deposits work like a credit, for instance if you put a total of $10,000 down with your two deposits, you will deduct that $10,000 from the money you will need to bring to the closing.  Your agent will be able to describe the escrow process more fully, explain the amounts of the two deposits and when they are to be made.

Closing Costs

Closing costs vary widely from lender to lender and home to home.  They are the upfront fees charged in connection with a mortgage loan transaction, such as loan origination fee, title exam and title insurance, survey and attorney's fee.  There are also items that must be prepaid at the closing, such as escrow deposits for taxes and insurance.  Closing costs account for between 2% and 5% of a home's purchase price so you will need to budget for these added costs ahead of time to avoid sticker shock just days before closing.  Your lender will be able to give you a rouch estimate of costs when you apply for your mortgage, and within 3 days of your closing you will recieve a closing document or "CD" that will give you all the specific figures and the final amount of money you will need to have at the closing.

Take Away

Be sure to speak with your agent when starting your home search.  Your agent can recommend a few great lenders and will also be able to take you through the homebuying process step by step, to be sure you're prepared not only for the excitement of house hunting, but also for the reality of paying for your new house!