When you are ready to apply for a mortgage you may be wondering how much cash you will need to complete your home purchase. There are several upfront payments that may require you to have some cash for your home purchase. You may need money for a down payment, home inspection, escrowed taxes and home owner’s insurance and title insurance.
The down payment on your loan can range from 0% up to 20% of the purchase price of your new home. USDA and VA loans have options for 0% down, FHA loan down payments start at 3.5%, and conventional loans require between 3% and 20%. A discussion with your lender will let you know which loan program best fit for your financial position is.
I have had several clients who have closed on a home with very minimal upfront costs, I recently had a client who bought their home for a total upfront cost of less than $300! They opted for a USDA loan and the only upfront cost they had was their home inspection.
If you don’t have a big chunk of cash put aside for your home purchase don’t worry! There are options for you, it may mean your monthly payment will be slightly larger, but it is not unusual to finance a larger portion of the sales price for first-time homebuyers. Many people have a harder time-saving money these days, prices for everyday life have continued to rise and wages and salaries have not been keeping pace with the increase in costs. If you put down a smaller amount of money you can expect your mortgage to increase about $6-$8 per $1,000 you finance. You can make up the difference in cost by increasing the amount you pay per year as you become more financially able. If you can, plan on making one extra payment per year towards your mortgage you will realize the same benefit as having a larger down payment. If you divide your monthly payment by 12 and pay that extra amount each month you will shorten your loan term by as much a 6-7 years. You can make an extra payment each month or at tax refund time make a double payment, both will shorten your repayment period and these payments go directly towards the principle of your loan lowering the amount of interest you will pay over the life of your loan.
If you do have some money put aside for your home purchase or a family member who would like to help you with your down payment
you may want to get an FHA or conventional loan. These loans have down payment options can be as low as 3.5% or you can put down as much as you have saved up. If you have less than 20% down the lender will require you to have mortgage insurance, this extra payment protects the lender from losses from mortgages that are not able to be repaid. With conventional loans, this extra payment will drop off once you have more than 20% equity in your home. With an FHA loan the mortgage insurance remains in effect for the entire term of the loan but once you have enough equity you can refinance and eliminate the insurance payment.
In addition to a down payment, you may also need to pay for closing costs, which are costs associated with initiating a loan as well as funding your escrow account. These costs can include loan origination fees, discount points, attorney fees, recording fees and pre-paids (escrowed property taxes, school taxes, and home owner’s insurance). They often will total from three to five percent of the price of the home but can be as high as seven percent depending on the home price and area taxes.
If your ready to start looking for your first home don’t let all these costs scare you! Like I stated earlier I have helped several clients buy a home without any large upfront costs. There are opportunities in our area to receive grants for first time home buyers, there are options to have the seller pay the buyers closing costs, as well as loans that do not require down payments. If you have questions, we can meet and chat about your options. You might be surprised by what you find out and we can start the journey towards buying your first home. Isn’t it time to stop paying your landlords mortgage and begin building equity in your own home?
Let’s chat soon, give me a call, text, or send me an email today.
We look forward to assisting you with the purchase of your new home. As well as getting you the best price and terms for the sale of your current home. We look forward to building a relationship with you.
Many first-time buyers are unsure about some of the financial aspects
"Keith was by the far the best person for the job. He made the whole process super easy for us. He was always one step ahead of all of the curve balls, plus he's just a super nice person. Beyond greatful that he was there in this big decision"