How much money do I REALLY need to buy a home?


How much money do I REALLY need to buy a home?

Many buyers have a misunderstanding, or just simply have no idea, how much money they need to buy a home.  It can be very confusing, even to a buyer who has purchased multiple homes, as laws change, the market changes and simply put, things change.  There are many facets that go into this answer, yet first and foremost you’ll want to speak to a lender to figure out what type of loan you qualify for IF you need financing, meaning you don’t have 100% cash to purchase the home.

Let’s start with the various types of loans so you understand what each requires for a down payment, then we’ll go into the closing costs and options available to help you with those costs.

1.       VA/USDA – If you are active or retired military you can qualify for a VA loan which offers you 100% financing, so you don’t have to come up with any down payment if you don’t want to.  Depending on how many times you’ve used your VA, there are fees involved if you’ve used it multiple times, so you’ll want to know that in advance as that is additional money needed out of pocket.

2.       FHA – This is the loan known as “First-time homebuyer” yet it is for anyone who hasn’t purchased a home within 3 years.  So, you can use this type of loan multiple times.  It requires a 3.5% of the purchase price as a down payment.

3.       Conventional – There are various types of conventional loans ranging from 1% to 20% and more of the purchase price.  You must have a higher credit score to qualify for the different types of conventional loans that a lender can discuss with you further.  The great thing about putting 20% down is you don’t have to pay PMI (Private Mortgage Insurance), which is an extra monthly fee that costs approximately 0.5%-1% of the entire amount of the loan on an annual basis (example: $300,000 at 1% is $3000 annually at an additional $250 added to your payment per month).

So those are your options for financing.  Now let’s go into the closing costs.  Typical closing costs for a buyer are around 5-6% of the purchase price.  This amount includes the appraisal, inspections, lender’s title policy, title fees, loan expenses, property insurance, recording fees, survey, and potentially some other fees depending on what is negotiated on the contract with the seller.  To get an accurate amount of what the closing costs will be, you would need to get a Good Faith Estimate from the lender. 

Now going into some options to help you with the closing costs, so that 5-6% amount of the purchase price.  There are sometimes lender credits, where your lender can give you cash back at closing to help with those fees.  There are also seller concessions, where the seller give you cash back at closing to help with those fees.  Depending on your state and country, there may be some buyer programs going on, so be sure and ask your Realtor as they should know about the various types of programs in your area.  These are just a few creative ways to get some additional funds to help you with the purchasing of a home.

All in all, the average amount of money a buyer must come up with is typically 8% of the purchase price, so let’s say for a $250,000 home you’ll need about $20,000.  Don’t get discouraged if you don’t have that much saved.  Still call a Realtor or lender to see if you can qualify for some of the options above.  There are many buyers we have helped purchase a home with very little money down.  Know your options, have the right people helping you and you can buy a home with little down.