This is Part 3 in a series of posts about how to tackle the home buying process.
You’ve reviewed your credit score and income, now you need to make sure you have enough money saved to seal the deal! While you can finance most of the cost of a home with your loan, there are still items that require you to have cash on hand at the time of closing.
Down Payment – Depending on your credit score and the loan program you choose, your minimum down payment will be anywhere from 3.5% to 20% of the purchase price. So if you are planning to purchase a $300,000 home, your down payment will be anywhere from $10,500 to $60,000 — a very broad range! This is why meeting with a lender well beforehand is important, because they will help you determine what your down payment should be and whether you’ll need to continue saving.
Closing Costs – Closing costs can sometimes be paid by the lender or the seller (if they agree to it), but you should be prepared to pay the full amount just in case. Closing costs include lender fees, title insurance, recordation charges, and more. For a $300,000 home, you should plan to pay an average of around $6,000-$8,000, plus any lender points charged (1 point = 1% of your loan amount). Your lender will provide you with a Good Faith Estimate that details the closing costs.
Post Move-In Items – Want to make minor updates as soon as you move in? Need to buy new furniture? What if the washer/dryer breaks in the first month? Make sure you have a small cushion built in for unforeseen items or things you may have forgotten about during the excitement of the purchase itself!
Note: Savings and income go hand-in-hand when it comes to affordability. A higher income may allow you to purchase a higher-priced home on less of a down payment, whereas a higher down payment (using inheritance, gift money, etc.) may allow you to purchase a higher-priced home than you would otherwise qualify for on your income + the minimum down payment alone. The estimates above assume you will be making the minimum down payment required and financing the rest through your loan.
Stay tuned for next week’s post which will discuss the process of meeting with a lender.