Between the time you start house-hunting and the day you sign your name over and over and hold your new house keys in hand, you'll need to pay various sums of money to satisfy the requirements of the seller and your lender. The exact amount that you'll have to pay varies widely depending on your purchase agreement and mortgage requirements.
When you find the house of your dreams, you'll meet with your real estate agent to make an offer. To show the seller that you're serious, you'll be asked to put down an earnest-money deposit, which is a portion of your down payment. This deposit may be a certain percentage of the purchase price or a flat dollar amount, depending on the seller's preferences, how much interest others have in the house and whether the housing market is more favorable to the seller or to the buyer.
Your lender will determine your required down payment, which is included in the price of the house. In some cases, you may qualify for no down payment or a low down payment. Traditionally, lenders have asked for 20 percent down, but especially if you are a first-time homebuyer, you may be able to put down only 3 to 5 percent. The benefit to putting down 20 percent is that you will not have to pay for private mortgage insurance, or PMI, which protects the lender if you default.
Closing, or settlement, costs are the fees associated with the mortgage itself and are above and beyond the price of the house. These fees are for things like taxes, title insurance and financing costs. These costs usually range from 2 to 7 percent of the purchase price and can be negotiated in many instances. Sometimes, the seller may agree to pay a portion or all of your closing costs.
Each state has requirements for how an earnest-money deposit is held. Normally, it is held in an escrow account until the closing and is not accessible by you or the seller. If you don't have enough money for your down payment and closing costs, it may be wiser to postpone buying a house than to search for a program that will allow you to avoid a down payment. Make sure you're financially ready for the responsibility of owning a home before getting your heart -- and financial future -- set on buying a house.
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