What do Buyers Need to Purchase a Home?
- Adam Garrett
- May 29, 2023
- 15 min read
Updated: Jun 30
In this article, I wanted to go over what a buyer needs to buy a house.
A REALTOR® (optional but highly recommended)
For more details on what I offer buyers, go here.
Close to 90% of buyers choose to work with a real estate agent representing them (NAR). Many buyers experience buyer's remorse. By using a great buyer's agent, you reduce the probability of that happening, can save money at times, can win in a multiple offer situation without overpaying at times, & more.
Using the right buyer's agent increases the probability of finding & obtaining a better home than if you did the job without professional representation. The right agent can also help with elements like programs to reduce home cost, getting you prepared for purchasing as in this article, making the right offer in a multiple offer situation, justifying the reasoning for an offer at times if below asking price, requesting concessions, & more. For more details, go here.
Will I Need to Pay My Buyer's Agent?
My buyer clients pay me nothing as long as the seller is paying even a relatively low commission. My commission typically comes from the purchase of a property, paid for by the seller. The unusual case where a buyer would pay me is if the seller were not paying any buyer's agent commission and we were not able to negotiate one or where the seller is paying a <2.5% commission. Even then what a buyer would pay GRP would be only up to 2.5% (minimum $3k at the time of this writing for properties <$120k) when median commissions in Hampton Roads, last I checked, was 3%.
How Much Will My Agent Get From the Total Buyer's Agent Commission? As Little as 1% in Extreme Examples.
A commission fee would be paid to GRP, not directly to me, and could include a referral fee, so after my split when it's all said and done, I may only be getting as little as 1% if there is an additional hefty referral fee.
Should I Consider Homes that Don't Meet My Agent's Minimum Commission? That Depends
While there are some cases where a for sale by owner home will not offer a buyer's agent commission, it is rare that homes are purchased that way and I have never closed on such a home with a buyer before. Such properties can be avoided, however, I suggest still considering them in case you find a particularly good deal as long as you have the capital to afford the up front costs involved. A FSBO home that is priced to sell, especially one that doesn't have any buyer commission, is usually going to go for a lower amount than a comparable home that is listed with a real estate agent. That said, many FSBO homes are overpriced, in part because of the lack of agent coaching on price and other matters.
What's the difference between a REALTOR® & a real estate agent?
Keep in mind that not every real estate agent is a REALTOR®. REALTOR®s have higher standards that they are required to abide by. Some licensed real estate agents, including at least one that I worked with, have had their REALTOR® designation removed due to unethical behavior. Keep in mind that they are still licensed real estate agents while no longer a REALTOR®.
When choosing a REALTOR®, remember that some take their fiduciary duty to always keep their clients' best interest in mind above their own more seriously than others. Knowing that your REALTOR® is a man or a woman of integrity is also critical. While the average REALTOR® works 40 hours a week, some are lazy, so be sure to choose one that you are confident will work hard for you. I also recommend choosing someone who is competent and knowledgeable about the business. Garrett Realty Partners has trained some of the top agents in the area. Go here for more details.
If Purchasing from a Distance
For those purchasing a home from a distance, it is helpful to choose a REALTOR® who is tech-savvy, especially someone who can walk you through digital signatures and can shoot live or recorded video to help you preview properties. I have helped long-distance clients in the past through these means.
Related:
Costs Involved
Some Savings (typically required & highly recommended)
This amount depends on the kind of financing you're using, any supplemental programs to reduce your home cost, whether you'll be using financing at all or all cash. It also depends on factors like assets, liabilities, copays, family size, and comfort levels.
Tax Relief & Deferral in Hampton Roads (typically requires veteran status, disability, 62+, & in some cases certain income levels to not exceed)
Good Neighbor Next Door Program (50% off homes)
The amount needed for savings can be reduced in various ways, whether through:
Options for an early withdrawal from a retirement plan in some cases. Please consult a tax advisor about that instance since I am not a CPA, & keep in mind that with employer-sponsored plans, tapping into it might eliminate your ability to get employer match until the amount you borrowed is paid off, so reach out to your HR department about that before attempting it. Principal taken from Roth IRA's after 5 years are my personal favorite for this method if you need it.
Money available from family in the event of emergency
Purchasing a manufactured or mobile home should factor in shortened life expectancy of home and components
Purchasing a newer home or a home with many replacements where a high volume of components have a long additional life expectancy
Beyond an emergency fund, some best practice funds (see disclaimer below) include:
Funds for vehicle repairs & replacement if you have a vehicle
Funds for home repairs
A growing investment account
I recommend first a focus on matched funds from an employer or the 50% effective "match" via tax credit if you have low enough income for that threshold of the Saver's Credit
I recommend a Roth IRA for many
I recommend long-term homeownership for many once the opportunity presents itself, which has protections that other investment classes don't. Unlike most homeownership cases, many other asset classes, even traditional retirement accounts and whole life insurance, can disqualify you from Medicaid or Social Security Income if the situation ever arose and you became disabled based on asset limits, though state requirements vary. Conversely, homes are typically protected, though there are some restrictions in some cases. ABLE accounts are tax-free savings accounts for disabled individuals that don't count against their asset limits & which may include home repair savings, i.e. a fund for roof replacement.
Keep in mind that with some loans & in some circumstances, you pay less than what you would to rent out a comparable home, but that's not typically the case in 2025. The massive 40x net worth difference that many talk about between the median renter and the median owner is due to the long game of long-term homeownership, not the short game.
For a more comprehensive savings & financial readiness that's helpful whether renting or buying, see:
Long-Term Financial Preparations for a Home Purchase & How Adam Can Help
Down Payment (or not)
Common down payments are anywhere from 3%-20% of the sales price of the home. That said, while most are only familiar with a few programs (FHA Plus, VA, and USDA) there are many programs to buy where you won't need to come up with a down payment yourself. Even if doing a no-down payment loan, you usually need at least 1% of the purchase price of a home in reserves that will not go toward the home purchase, although 401k & IRA's can help with those in some cases, especially Roth IRAs if you have had one for more than 5 years and are considering withdrawing principal.
There are also options where a down payment is required for a certain loan type, but the down payment is funded via down payment assistance.
Emergency Fund (highly recommended)
Whether renting or buying, I also recommend that you have money for an emergency fund even if you purchase a home warranty & home insurance (the latter of which is required for mortgages). Home warranties can still have co-pays, not everyone gets a home warranty, & home warranties as well as home insurance have limited coverage. You still should have sufficient co-pay funds in the event of a serious car accident or other major medical problems. Those with lower credit should develop more resources at their disposal than those with great credit, all other factors the same, because of the added cost of taking out a personal loan (or 0% introductory interest rate credit card) inherent in those with low credit should an emergency occur where savings, liquid assets (i.e. stock not in a retirement fund), & retirement fund withdrawals are insufficient.
Funds for Inspections (typically recommended & sometimes required)
You will also usually need money for a home inspection (usually $275-$550 with some of the inspectors I like to use but these can vary substantially, usually over $300 with other inspectors). If using a mortgage, typically septic/well inspections are required. Sometimes sellers pay for wood-destroying insect/moisture inspections, septic inspections, and well inspections but in other cases, buyers will foot those costs (if applicable for septic/well). Sometimes buyers will want additional inspections as well where the buyer would typically foot the bill, like a foundation inspection, water flow inspection, mold inspection, & radon inspection (more typical of Richmond than Hampton Roads due to Radon risks further West). In my case, I have a radon detector, the Ecosense RD200 RadonEye, Home Radon Detector, so if you're looking to do one of those with my detector (one that is more rapid/accurate than many), it'd be free. For a cost like a home inspection, it's typically paid prior to the inspection or on the day of the inspection by the buyer.
Some buyers will forego a home inspection in order to strengthen an offer, but I don't recommend that for most buyers in most scenarios unless they did a very thorough showing with a highly knowledgeable & detailed agent (i.e. going in the crawlspace and attic even if scuttle access to the attic & the crawlspace requires literal crawling, with the water & electric on at the time of showing, observing the roof from a drone, etc.) and have a high level of industry knowledge, i.e. if the buyer is a class A contractor or builder.
Appraisal (typically but not always required for loans)
The amount needed is often $500-$650 for a home but I've seen $850 for a rural area on an acre & much higher on dozens of acres. There are some cases where the buyer can forego an appraisal. While the most common one is a cash buyer looking to strengthen an offer in a multiple-offer scenario where comparable sales point to the property being offered below value where the agent underpriced it, there are also some cases where a buyer using a traditional mortgage can forego an appraisal due to the size of their downpayment, lender, and other factors unique to the home. Appraisals are typically paid by the buyer prior to the time of the appraisal after the home inspection contingency is removed.
Earnest Money Deposit (typically required but not legally required)
1% of the purchase price is typically viable, & minimum acceptable is usually $500 but that amount may be too low for some properties, especially those over $200,000. While not legally required, EMD's are a customary requirement and built into most offers as a default part of the offer. A large EMD (i.e. 10%) can help win an offer without increasing the price above the next highest offer.
For more details, see:
Closing Costs & Prepaid Expenses (typically required but sometimes not required from the buyer)
The traditional route (depending on the market and the time in that market) is for the buyer to fund their own closing costs and prepaid items at the time of closing, which are not to be confused with the down payment. That said, there are many exceptions. Closing costs & prepaid expenses for a purchase can sometimes be covered entirely by the seller, & sometimes by the lender or a program to reduce home costs, but even then, you typically will need to front appraisal fees.
In a hot market like 2021/2022, the majority of sellers aren't providing any closing costs in Hampton Roads, but there are still exceptions at times. Real estate is also seasonal where concessions are more likely in the winter than in the late Spring/Summer. While typically 3%-4.5% is needed if the buyer isn't seeking assistance, some costs that might go beyond 4.5% like a VA funding fee for a VA loan, if applicable, can be wrapped into your loan if needed, and sometimes that funding fee being high would push the total above 4.5%. Likewise, when applicable, an upfront mortgage insurance premium (1.75% typically, though it highly depends on loan type and down payment, and can be nothing in some cases) can push the total above 4.5% in some cases, but also can be added to the loan. Also, if your lender adds points to the equation to buy down the rate, these can go above 4.5%. The higher the purchase price, the higher the total closing costs/prepaids, but the lower the % closing costs/prepaids, and if buying in cash, that also reduces these costs. Some loans will allow more closing costs/appraisal fees to be covered by the seller than others. Most banks/credit unions only allow 3% closing costs/prepaids covered by the seller for the buyer on a 5% conventional loan, but even then there are exceptions like Garrett Mortgage not capping this amount, last time I checked with a GM lender, on a 5% down loan.
Up Front Deposits for Utilities (sometimes required)
Whether renting or buying, there may be some up-front deposits needed for utilities. For instance, when my wife & I bought our Isle of Wight home, the county wanted an upfront deposit of $240 for water/sewer.
Related:
Utilities List for SE VA (Primarily Hampton Roads)
Up Front Association Fees
Typically sellers will pay the cost of securing association packets, but sometimes there are other upfront fees involved for entry into an association that are required for any purchaser of a home. While typically these costs, if applicable, are below $1k, there are some cases where these costs can be 10's of thousands of dollars (i.e. Governor's Land in Williamsburg).
Related:
Other Costs
There are many other potential fees that are more rare.
For instance, if a seller is unwilling to pay for lender required repairs, and if a buyer doesn't want to shift their loan to be a renovation loan, an "escrow holdback" may be required, which is often 150% of the cost of the repair estimate.
If buying a home at auction, you might be responsible for a non-refundable large deposit (i.e. 5% or 10% of the purchase price) &/or a 10% buyer's premium that needs to be paid on top of the sales price.
In some distressed sales including some auctions, you might also be responsible for covering back-taxes etc.
Cost Depend on Day of Month (& Time of Year) You Close
In my article on the subject, I relate how typically (but not always), costs at closing will be higher if you close earlier in the month, but your 1st payment after closing will typically be later occurring as well.
Other Factors Involved for Those Using a Loan:
FICO Credit Score Above 580 (typically)
While some lenders will only accept buyers whose credit is 620 or 640, and some lenders will go below 580, it's relatively rare for lenders to go below 580. Often if a lender will go below 580 a higher down payment is required.
If you want to raise your credit, contact Adam Garrett so that he can put you in contact with a lender who can help some prospective buyers boost their score free of charge. Adam can also help you to boost your score if you would like, and he also suggests that you check the credit section of this website. For where to check your score freely, go here. If your score is below 740, I suggest taking some measures to build it to minimize your interest rate. While some lenders charge the minimum interest rates at 720, others charge the minimum interest rates at 740. Keeping a buffer above that figure is helpful, especially if it comes at no or low cost. Bankruptcies, short sales, and judgments can also limit your ability to buy, however there are ways to get around each by knowing what you're doing and with as little as 3 months time in the case of judgments with a payment plan and no waiting period with some short sales (as detailed in the "short sales" hyperlink above).
There are exceptions, including 1 loan I'm aware of where credit score isn't considered (though credit factors can disqualify you from the flat interest rates available for those with that loan, and there are substantial negatives with that loan dissuading many from the hassle including bad reviews by some).
Related:
2-3 Open Tradelines (typically)
While this factor depends on loan type and lender, you typically need 2-3 open tradelines. FHA states that you need at least 2 for FHA mortgages, but that a substitute form in some cases can work. Accunet states that you need at least 3 for a conventional loan. With lenders like Churchill Mortgage, you may not need any, but you might have a higher interest rate than you would otherwise.
Tax Payment History (typically required)
If you haven't paid taxes recently, and have taxes owed, you'll likely need to get that settled before qualifying for a purchase. Your mortgage lender will typically request your tax returns. If you haven’t paid your taxes recently, and you get stopped from closing after getting a preapproval and getting under contract without another contingency to fall back on, don't expect to get your EMD back.
One workaround is a "bank statement loan", which can be beneficial for those who are newly founded businesses where they report much lower income due to itemized deductions, but the interest rates tend to be higher with those.
Related:
2 Years of Similar Income History (typically)
While there are some exceptions, you'll often need 2 years of similar income history, whether that's from retirement, a job, or social security. The 2-year history typically needs to be within the same field. If you shift from salaried to commission base even if in the same field or vice versa, it can reset the 2-year clock in some cases. The amount of income you receive can go up &/or down during those 2 years, which can impact what you'll qualify for.
Examples of exceptions:
If you have a long-term job contract, especially if you also went to school for training in a job like that.
If you take off for more than 1 month between employers, where you may become disqualified and need a new 2-year work experience.
Doctor Loans I mention here
A Mortgage Lender (typically)
Unless using cash or a "hard money loan", a mortgage lender or mortgage broker is typically required. Even those that you wouldn't think could get a mortgage often can, whether those with poor credit scores via options like NACA, DACA buyers, those with very little cash reserves, etc.
Debt to Income Ratio
Your debt to income ratio is the % of monthly expenses you have going to debts vs the gross income that you have. Debts include things like student loans (even if in forbearance currently), car payments (even if you are a cosigner on someone elses vehicle), minimum monthly credit card payments according to your last statement balance (even if you pay automatically in full every month), monthly payments for judgements, etc.
They don't include something like your current rent if looking to purchase an owner occupied property. They don't include insurance or utility payments.
Investor Purchasers
Buying a home non owner occupied typically means higher costs involved, including:
1. higher minimum down payment requirements (but I am still aware of as low as 5% down for an investor)
2. Less loan options (i.e. no VA, FHA, USDA, or NACA home loans)
3. Less programs to reduce home cost available and different ones available
4. Higher interest rates
Buying a modular, mobile or manufactured home
There are typically reduced options for buying manufactured and especially mobile homes for financing. Some lenders don't do either. Down payment requirements and interest rates are often higher, especially with mobile homes. Modular homes have fewer issues, but there are still some negative differences between modular & stick-built construction. For more details, go here.
Buying an As Is Home
In some cases, as is home sales, especially when the seller is unwilling to cure lender required repairs, can cost more up front than typical homes. Most, but not all, rehab loans will require higher down payments and higher interest rates.
Buying Land
Buying land, especially when not accompanied by a home to construct on the property, typically incur higher interest rates and initial down payment requirements than buying a home that's already been constructed. For more details, go here.
Additional Financial Matters to Keep in Mind:
Budgeting (highly recommended)
If you need to build your savings, or need to pay off debt before a home purchase, budgeting is the number 1 way to do it, with increased income being the second primary factor that can help. There are many free resources available as well as paid options available.
Free classes & other budgeting assistance:
1. If you need help for your home purchase in SE VA, & would consider using Adam as your agent for a future purchase, ask Adam for a free budgeting session.
2. https://www.theupcenter.org/how-we-help/crisis/housing-financial-counseling/
3. https://www.cceva.org/need-help/financial-housing-counseling/
The closest offices for many are in Chesapeake (VA) & Newport News (VA)
Call (757) 484-0703 to schedule a budget counseling session
4. http://debtfreeonline.com/2010/about.html
http://www.debtfreeonline.com/2012/budget.html
5. Debt Relief: https://www.needhelppayingbills.com/html/help_paying_debt.html
6. How to save: https://www.needhelppayingbills.com/html/how_to_save_money_on_bills.html
For more of what you need, go to the Mortgage & Financial page, Finding a Home, or my Credit's Impact & How to Build it page.
Disclaimer
Please keep in mind that while the author of this article (Adam Garrett) is a real estate agent, he is not a certified public accountant, lender, or financial advisor. The content on this site is not provided by a bank or issuer. Opinions expressed here are author's alone, not those of a bank or issuer, and have not been reviewed, approved or otherwise endorsed by a bank or issuer.
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