Smart Home Buying: Filling The Right Financial Buckets

When you’re in the market to buy a new home, one of the most pressing questions is: How much money do I need? Searching for the perfect home can be both exciting and overwhelming. You may spend countless hours scrolling through listings, finding homes that check some boxes but not all. Then, finally—you find the one! But can you afford it? (Opulent Hint: At this stage, you should be pre-approved or pre-qualified.)

Over the past couple of years, home prices, interest rates, and lending requirements have shifted significantly. Being financially prepared is more critical than ever. In a competitive market, you need to be ready to act quickly, ensuring that you have the necessary funds in place to make a strong offer.

There are three major financial buckets you’ll need to have cash savings or assets available for in order to successfully move from contract to close.

Bucket 1: Due Diligence & Earnest Money

When a seller accepts your offer, the due diligence period begins. At this time, two important fees are required: Due Diligence Fee and Earnest Money Deposit.

• Due Diligence Fee: A non-refundable payment made directly to the seller to compensate them for taking the home off the market while inspections and appraisals are completed.

• Earnest Money Deposit: A refundable deposit held in escrow that demonstrates your commitment to purchasing the home. If you proceed to closing, this amount is credited toward your final costs.

The amounts for these fees vary by market. In competitive markets like Charlotte, buyers often pay between 1%-3% of the purchase price in due diligence and earnest money combined. In multiple-offer situations, offering a higher due diligence fee can strengthen your bid. Your real estate professional will guide you in determining the right amount to offer. Typically, both the due diligence and earnest money payments are due within five days of contract signing, making it crucial to have these funds available upfront.

Bucket 2: Down Payment

Your down payment is the portion of the home’s purchase price that you pay out-of-pocket, with the remainder covered by your mortgage loan.

• Loan programs vary, and so do their down payment requirements. Some common loan options include:

  • Conventional Loans: Require anywhere from 3% to 20% down, depending on the lender and borrower qualifications.

  • FHA Loans: Require 3.5% down for borrowers with credit scores of 580 or higher.

  • VA & USDA Loans: May require 0% down for eligible military veterans and rural homebuyers.

Given today’s fluctuating mortgage interest rates, understanding your Loan-to-Value (LTV) ratio is key to determining how much you’ll need to save for a down payment. Additionally, some first-time homebuyer programs offer grants and down payment assistance to help offset these costs. If you’re unsure about what you qualify for, consult with a lender who specializes in homebuyer programs.

Bucket 3: Closing Costs

Closing costs are the fees and expenses associated with finalizing the home purchase. These costs typically range between 2%-5% of the home’s purchase price and can include:

• Lender Fees: Loan origination fees, discount points, and underwriting costs

• Appraisal & Inspection Fees: Costs to evaluate the property’s condition and value

• Title & Attorney Fees: Title search, insurance, and legal documentation processing

• Prepaid Costs: Property taxes, homeowners insurance, and mortgage interest

In some cases, buyers can negotiate seller concessions, where the seller agrees to cover a portion of the closing costs. However, in today’s market, sellers are less likely to agree to concessions unless the home has been on the market for an extended period.

It’s important to budget for these expenses ahead of time to avoid any last-minute financial stress at the closing table.

Final Thoughts: Preparing for Homeownership

Buying a home is a significant financial commitment, but with careful planning, you can set yourself up for success. If upfront costs feel like a barrier, there are grant programs available that provide assistance with down payments and closing costs—sometimes up to $17,500 for first-time homebuyers.

A knowledgeable real estate agent will help you understand all these costs long before you make an offer. If you’re not currently working with a Realtor, reach out—I’d love to guide you through the process and help you access the resources available to make your dream of homeownership a reality!