Frequently Asked Question: How much money do we need?
One of the most often asked questions from home buyers we hear is "How much money do we need to buy a home?"
Yes, there have been lots of different mortgage products that cater to those buyers with little money for a deposit. And it has just been announced that loans with 3% down are being considered and offered.
However, this is not the end of the story. When you buy and sell a house there are what are called closing costs, agent commissions, transfer taxes, title insurance, mortgage fees, insurance, and inspection costs to name a few. These for buyers on the Main Line often come to about 6.5% of the offer price of the home.
So, on top of your deposit/down payment you need the funds for these closing costs. Some lenders and mortgages will allow you a seller assist, as we discussed in a previous post, some sellers can offer this, some cannot. Also some lenders and mortgages will allow gift money, from say a parent or grandparent who wants to help a a first time buyer child or grandchild buy their first home. This gift money must be documented and the source of the funds needs to be shown.
In the last year as Main Line Realtors we have sat down with several buyers and gone over all the different costs involved. Many thought all they needed was 3.5% of the purchase price and nothing else. We have had to tell them when we go over the closing costs and see their available funds, they cannot afford to purchase a home and they need to rent for a while and save up for a while longer. You need more than that 3-3.5% down payment.
Some loans such as VA loans will allow 100% financing with no mortgage insurance, a wonderful benefit for veterans worth taking advantage of when possible.
Another issue to remember is that, when you buy a home you often want to make changes, and you need the funds to do this, as well as have an emergency fund just in case something breaks unexpectedly. You need to bear all this in mind when buying a home today.
Many sellers considering moving up to a larger home also forget the different closing costs, as mentioned both buyers and sellers have these costs, and it may make more sense to stay in the house than to move when all the closing costs are considered. Obviously the more funds you can put down the stronger position it puts you in financially but also with sellers as they feel more comfortable with a buyer who is financially stronger than perhaps another offer which includes higher financing levels.
To close this post remember also that the higher credit score you have, the better rate of interest you will also be offered as you show less risk to the mortgage lender. So, it is always important to be working on improving your credit score, not over leveraging your credit limits, paying your bills on time, not missing payments, watching you debt to income ratios.