How much cash do I need to buy a home?

"How much money do I need?" is a common question from people thinking about buying a home. When asking the question buyers are often thinking about how much down payment they will need, but there are other costs involved as well. The percentages below are based on percent of purchase price.

DOWN PAYMENT

The minimum down payment depends on the type of loan you do…

• FHA – 3.5% down, if a condo the complex must be pre-approved or a 'spot' approval for the unit may be another possibility
• Conventional – 5-10% down, not as many options with 5% down, plan on 10% down for condos; you need 20% down to avoid paying mortgage insurance
• VA – 0% down, for veterans only, the only option still available with no money down; for condos the whole complex must be VA approved, which is rare

CLOSING COSTS and PREPAIDS

These are rough estimates of costs due at closing. Purchase agreements often include a 3% seller contribution towards these costs to lower buyer out-of-pocket expenses.

• Closing costs – 2.0-3.0%, this includes financing costs, title insurance and fees for closing services, some costs are fixed so the percent of the total comes out higher in lower price ranges
• Prepaids – 1.0-1.5%, this includes interest, taxes and insurance payments from closing date to the end of the month and starting your escrow account…the fewer days left in the month, the lower the cost

EARNEST MONEY

• 1-3% deposit – this is money submitted with your purchase agreement; it is required by law to be cashed within 3 business days of coming to an agreement and is held for you until closing when it is applied to your settlement costs; 1% is commonly accepted, but sometimes they require more…this week I submitted an offer for a foreclosure where they required a 3% earnest money deposit

HOME INSPECTION

• $300-$400 – most purchase agreements are contingent upon inspection; this amount can vary depending on size of the property and the inspector used; usually more thorough inspections and more comprehensive reports have the higher cost; payable at the time of the inspection
• $100-$200/test, Radon, asbestos, well water - radon testing is becoming a fairly common test; Structure Tech Home Inspections tells me about 40% of the homes they test show evidence of radon levels needing mitigation

APPRAISAL

• $350-$450 – ordered by your mortgage company as part of the loan underwriting process, an appraisal is different from a home inspection; although it may be included in your costs at closing, this expense is often paid at the time of the appraisal

HOMEOWNER'S INSURANCE

• .03% – this is a rough estimate, the actual amount varies depending on your coverage, etc; payment for the whole first year is required prior to or as part of closing; usually your mortgage payments will include an amount to be escrowed for payments for future years
• If you are purchasing a condo or townhome, this required insurance is usually included in your association fees; you should secure your own insurance for the interior space and your possessions, similar to renter's insurance, it is not required

Buyers get their money from different sources…including personal savings, 401Ks, gifts from family or friends, down payment assistance programs. Regardless of where it comes from, you must be able to document it by a paper trail. You will also need to provide certified funds at closing, so be sure to allow sufficient time for checks/transfers to clear if you are consolidating funds or pulling them from other sources.

Sharlene Hensrud, RE/MAX Results - Email – HomesMSP.com

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