Read This if You're Thinking About Buying a House in 2023

Whether you’re a first-time home buyer or not, saving to buy a home in this market can be intimidating. We’ve answered a few questions on the cost of buying a home in 2023 and how to best prepare for it. Danny and his team of Phoenix real estate professionals have been doing this work for 20+ years, including through the 2008 recession and beyond. They have the experience needed to ease any lingering fears you might have and to help walk you through planning your budget. Let’s dive in. 

How Much Down Payment Do I Need to Buy a Home? 

You’ve probably heard the popular myth that you need a 20% down payment to buy a home no matter who you are. With home prices soaring into the $500,000s for an average 3 bedroom, 2 bathroom home. That puts your down payment at a cool $100,000. The good news is, this is only a myth. You do not always need 20% down to buy a home. A recent article published by Mortgage Reports explains that the average first-time homebuyer only needs to put down about 6%. Some home loan programs even allow as low as a 3% down payment. I don’t know about you, but $30,000 sounds a lot better to me than $100,000! 

There are numerous types of home loans, down payment assistance programs, and other options available for first-time home buyers that take the sting out of having to write the check for that chunk of cash. The down payment assistance programs (DPAs) are usually at the local and state levels. There are four types of DPAs:
 

• Grants – gifted that never has to be repaid
• Loans – these count as a second mortgage on your home
• Deferred loans – these also count as a second mortgage, but only have to be repaid if you move, sell, or refinance your home
• Forgivable loans – these also count as a second mortgage but are repaid over a pre-determined number of years after you move, sell, or if you refinance too early.

Arizona’s specific home buyer and down payment assistance programs are available to buyers whose annual income does not exceed $122,100. Borrowers are required to complete a home buyer education course before closing and must have a minimum credit score of 640 or better. You can learn more about specific guidelines, frequently asked questions, and get the latest news for Arizona home buyer programs here. 

What Do I Need to Know About Closing Costs?

Simply put, everyone has to get paid and closing costs ensure that happens. A real estate transaction has a lot of people and organizations involved, other than you, your realtor, and your mortgage lender. You should budget between 2% and 5% of your total home purchase price on closing costs. These can vary depending on location and situation, but some examples of where your closing costs may go, according to Freddie Mac are:

• Government recording costs
• Appraisal fees
• Credit report fees
• Lender origination fees
• Title services
• Tax service fees
• Survey fees
• Attorney fees
• Underwriting fees

What Even Is Escrow, Anyway?

We’ve all heard people say, “we’re in escrow!” This just means that a third-party account (usually the title company’s trust or broker’s escrow account) has been established under the condition that its contents (money, property deed, funds, etc…) will be released once all predetermined terms are met. 

The money deposited into this account is called Earnest Money Deposit. Establishing this account tells the seller that you’re serious about buying the house. While an EMD is optional, making this deposit is a widely understood show of good faith when making an offer on the house. According to realtor.com, it’s a good idea to set aside around 1% to 2% of the total home price for your Earnest Money Deposit. 

“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. In effect, the earnest money is just paying more of the down payment and closing costs upfront.”

Some lenders, but not all, require that you establish a Reserve Account Escrow. This is similar to the Earnest Money Deposit in that the funds can go toward your down payment, but they also can be used to cover annual costs like property taxes, homeowners insurance, and private mortgage insurance. Lenders that require this usually ask that you pay two months of these reserves up-front. Each time you make a mortgage payment, part of your payment will go into your escrow account and your lender will use that money to pay your insurance and taxes on your behalf. 

Your Phoenix Real Estate Team Can Help

As with any costs associated with buying a home, talk to your real estate agent. Some of these costs are optional, some of them depend on the lender, and some just can’t be avoided. Danny and his team have your best interest at heart and are here to help with any questions you have. Everyone’s situation is different, and we’ve seen it all here at Danny Kahn Real Estate. So, don’t hesitate to reach out.