How Much Money Do I Need To Buy A Home

How Much Money Do I Need To Buy A Home

How Much Money Do I Need to Buy a Home?

Money needed to buy a home consists of three parts.  Down payment, Closing Costs and Reserves.

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  •  Down payments ranges from zero down payment to over 20% down payment.  Different companies sometimes give rate benefits all the way up to 25% down payment.  For many buyers, especially buyers that do not have a home to sell, lower down payments are very important in the process of getting to the American dream of home ownership.  Let’s look at each type of loan starting with zero down payments.  All loans in this list require you to qualify for the respective mortgage and be an owner occupant.

  •  VA or Veteran loans.  The United States rewards the brave men and woman that serve their country with the benefit of a zero down payment loan with very competitive rates.  Active duty, Retired, National Guard and Reserve service members may all qualify.  These loans do not have mortgage insurance but do require upfront premium to be paid or financed into the loan.  Talk to one of our preferred lenders who are qualified to help you with a VA loan.Image title

  • USDA or Rural Development Loans.  As a part of its Rural Development program, the USDA invested almost $20 billion in 2014 to help nearly 140,000 families buy and improve their homes. The program is designed to “improve the economy and quality of life in rural America.” It offers low interest rates and no down payments, and you may be surprised to find just how accessible it is.  Our preferred lenders can tell you what areas qualify and help you get a USDA loan.

  • $1000 dollars down.  All of the following loans including, 3% down Conventional, 3.5% down FHA, 5% down Conventional can have up to 5% of your down payment loaned to you or deferred until you sell with MHFA if you qualify.

  • 3% down Conventional Loans.  If your credit score is 680 or higher and you have not owned a home in three years this loan might work for you.  Maximum income requirements range from 77,400 to 99,500 depending on family size and which county you live in.  Talk to one of our lenders and they can help you thru the process.  Purchase price in 11 county metro is 307,90 or less or 255,500 or less in the balance of the state.

  •  3% down Conventional Loans.  If your credit score is 680 or higher and you have owned a home in three years this loan might work for you.  Maximum income requirements range from 77,400 to 99,500 depending on family size and which county you live in.  Talk to one of our lenders and they can help you thru the process.  Purchase price in 11 county metro is 307,90 or less or 255,500 or less in the balance of the state.

  • 3.5% down FHA loans.  The federal government helps home buyers with this 3.5% down payment loan.  The government guarantees the loans with the bank so borrowers with lower credit scores and achieve the dream of home ownership.  This loan requires an upfront premium and mortgage insurance premium.

  • 5% down conventional loans.  These loans are an alternative to the 3.5% down payment loan if the borrower has 5% to put down and has a 640 or higher credit score.  This loan requires mortgage insurance until the equity in the home is around 20%.

  • 20% down conventional loans.  If you have 20% down and a 640 or higher credit score you can get this loan without mortgage insurance. 

Closing Costs

In addition to your down payment there are things that need to be paid at closing other than the down payment.  Here is a list of the common costs associated with a 150,000 purchase and a 144,750 loan amount. 

Some costs are determined by the government which are:

Mortgage Registration Tax     347.40

Recording Fees                        92.00

Conservation Fee                    5.00

Other Fees that you will be required to pay are called different things but include:

Closing Fee                              295-350

Lender Title Fee                      365-435

Owners Title Premium            152-190

Title Search and Exam            500-680

Title Abstracting                      265-315

Commitment Fee                    440-475

Disbursement Fee

Closing Settlement Fee

The average fees calculated over six companies was 1934.36.

In addition, you will have Lender and Appraisal Fees

Appraisal Fee                          425-600

Processing Fee                        395

Underwriting Fee                    695

Administrative Fee                  295

Credit Report                          75

Flood Certification                  12

You will also have pre-paid taxes and pre-paid insurance that will go into your escrow account.  In real estate, anescrow accountis a separate bankaccountused by your lender to pay your property taxes and insurance. Here's how it works: You make monthly payments into theaccountat the same time you make your mortgage payment.  The lender then pays your taxes and insurance when they are due so you do not have to make any extra very large payments 2-3 times each year.

Depending on what month you close you may have to escrow between 2-7 months of taxes.

Closing Month

Number of months of escrow reserves

January

6

February

7

March

2

April

3

May

4

Taxes Due

June

5

July

6

August

7

September

2

October

3

Taxes Due

November

4

December

5

 

This could be quite a bit of money if you are closing in Feb or Aug since you will have to escrow seven months of taxes.  You are not really losing this money since it will be used to pay your taxes in 2 months.  With home owner’s insurance, you will have to escrow 2-3 months of insurance.

Total amount needed for a 150,000 dollar home purchase in August if the taxes are 1800 a year and the insurance is 1500 per year would be:

Title and Closing Costs                        $1934.36

Loan Costs                                           $1922.00

Prepaid Taxes                                     $1050.00

Prepaid Insurance                               $250.00

Total                                                   $5,156.36

So who can pay the costs required to buy a home?

Your down payment can be paid by:

For an FHA loan, you or a family member can gift the money to you.

For a conventional loan the borrower is required to pay their down payment.

Who can pay your closing costs, pre-paids and lender fee’s?

FHA, Conventional, VA, USDA, MHFA, all allow at least 3% of your costs to be paid by the seller as a credit at closing.

Why would the seller pay the buyers closing costs, don’t they have their own costs?

Yes, sellers have considerable more costs than buyers.  The average seller pays between 6.5 and 7.5% of the sale price of their home for commissions, title and closing costs.  Paying an additional 3% for your costs is a lot of money for them.  If the home has been on the market for 30 days without a price reduction, the sellers may be willing to pay 3% of your costs instead of accepting a lower offer from you. 

Is it possible that they would take less than full price and still pay your closing cost if they have not had a price reduction for at least 30 days?  Maybe but it is much less likely.

What do I need to do to get the sellers to pay my costs if their home is new on the market?

In many cases they are going to ask you to raise your offer above full list price if you want your closing costs paid.  They also may meet you half way.  If you are asking for 3% of the sale price on a $150,000 home, that is $4500.  The sellers may ask you to raise your offer price to 152,250, which is $2250 above full price and then pay $4500 towards you closing costs.  The net offer to the seller is not actually $152,250 but $152,250 - $4500 = $147,750.  Remember, it is not the purchase price the sellers are getting from you but the purchase price minus any closing costs that they are agreeing to pay for you.  They also will still have to pay all of their cost.


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Phone: 952-261-9695
Dated: July 23rd 2016
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