The question of how much money is needed to buy a house is at the top of every first-time home buyer’s mind. The answer varies wildly depending on your financial and home ownership goals, but below are general rules of thumb and informative overviews on down payments and closing costs.
The finances behind buying a home are comprised of paying your down payment, securing a mortgage on the remaining amount you are not putting down, and paying for closing costs.
Down Payment Bank of America shares a helpful overview on down payments – “Your down payment plays an important role when you’re buying a home. A down payment is a percentage of your home’s purchase price that you pay up front when you close your home loan. Lenders often look at the down payment amount as your investment in the home. Not only will it affect how much you’ll need to borrow, it can also influence:
Whether your lender will require you to pay for private mortgage insurance (PMI). Typically, you’ll need PMI if you put down less than 20% of the home’s purchase price.
Your interest rate. Because your down payment represents your investment in the home, your lender will often offer you a lower rate if you can make a higher down payment."
There are many options for financing a home - from 0% down with a VA loan for veterans, 3.5% down with an FHA loan, conventional loans starting at 3% down with 15 or 30 year terms, and so many other options. The best rule of thumb here is to always talk with a trusted lender to determine which option would be best for you, and to help you come up with a game plan for how much to be saving now for your down payment. Our team's preferred lending partner,Benchmark Mortgage, would love to talk through options that would be the best fit for helping you make a wise decision for the years to come. If you would like for me to connect you with a member of Benchmark Mortgage, shoot me a text! Closing Costs Closing costs are fees paid at the closing of a real estate transaction (closing - when title is conveyed to the buyer). These fees typically include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges. Prepaid costs are also paid at closing, and include property taxes (that the seller pays at closing for the portion of the year they have lived in the home), homeowners' insurance, and a home warranty. Typically, buyers will pay between 2-5% of the purchase price of their home in closing fees, in addition to the amount they use as their down payment. Some closing fees are negotiable, so having a Realtor to guide you through saving money where possible is paramount!
Hopefully that helps you get an idea of the amount you might need to buy a home! If you’d like to talk through creating a game plan for saving up for your first home, reach out to me at any time – I’d be happy to help in any way I can!