I work with many first time homebuyers and it's very common for those buyers to believe that they only need to have cash for a down payment. For some reason, lenders aren't clear with the buyer/borrower that when they buy a home, they need money for both the down payment AND closing costs. There are all types of loan programs available to borrowers, but the one that most first time homebuyers are attracted to is an FHA loan (if they're not eligible for a VA loan which is no down payment). FHA loans only require 3.5% of the purchase price as the down payment. Sounds great, right? But, here's the catch. In addition to that 3.5% down payment, those buyers will also need an additional 3.5%-4% to cover their closing costs. Closing costs typically include title/escrow fees, lender fees, escrows (that'll be a later blog post), transfer taxes, etc. So, a good rule of thumb with an FHA loan is to estimate at least 7.5% of the purchase price will be needed to get in to the home. Oh, and one other thing. It's not a bad idea to have at least 2-3 months of mortgage payments sitting in your bank account- just in case. Your lender may require that.
So, the take away is to start saving your money!! Keep working on improving your credit score(s) and you'll be in great shape to buy a home when this crazy seller market cools down! Don't hesitate to call me at 240-234-1000 or email me at jamie@gotagent.com with any questions. I love working with first time homebuyers!
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