One question that I'm asked most frequently from first time home buyers in my area (Macomb County MI) is how much money will they need out of pocket to purchase a home?
As most 1st time home buyers are purchasing their homes with an FHA mortgage that is the example I will use to explain the out of pocket costs.
You will need 3 1/2 % of the purchase price, plus your upfront one years homeowners insurance policy and approximately $200-$300 for your home inspection. A good example below will show you what you can expect to have to pull out of your savings account or checking account to purchase your new home.
| Example: $100,000 purchase price | with estimate of $2500.00 annual property tax | *Seller contributing 6% in closing costs, etc. |
| FHA down payment (3 1/2%) | $3500.00 | + |
| Estimated home owners insurance policy | $800.00 | + |
| Estimated home inspection fee | $275.00 | = $4575.00 typical out of pocket costs |
*If the seller does not contribute 6% towards your closing costs, pre-paids and/or tax prorarations we will have to talk to your mortgage lender to estimate how much money out of pocket you will need to buy your home.
Prior to the FHA change to the minimal 3 1/2% down payment a buyer could include their homeowners insurance policy cost in the minimal investment guidelines. That is not the case anymore.
The 3 1/2% down payment is to be considered a true down payment. Nothing else you add out of pocket can be deducted from that figure as you once could before the guideline changes.
My advice: Spend cautiously, save your money and put it aside for the down payment necessary to buy a home. Saving towards buying your 1st home will also help you establish good financial habits that will help you in the future.
~Kris Wales~ A partner for your real estate needs in Macomb County MI
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