I try to find some fun, interesting topics for blog posts – this one is a little dry, but important! I will sneak in a few of these here and there, just for variety – and because, like vegetables, they’re good for us.
I find that new homebuyers are confused about how much money they should have in hand BEFORE they begin looking for their dream home. A quick answer is – call your lender ! They can give you a good idea of what price home you can buy, and how much in reserve you should have before you begin looking. My favorite mortgage lender – the one I use most often and who will do my loan when I purchase a home – is Carlisle Dent of Fidelity Bank Mortgage. Tell him I told you to call and he’ll be happy to discuss it with you.
But if you’re just “thinking about it” at this point, or just want a general idea, here we go:
Generally, the largest chunk of dough you should have in advance is your DOWN PAYMENT. The down payment varies depending on the type of financing you are using, your monthly payment and the price of the home you are purchasing. It is a percentage of the purchase price, and that percentage depends on the financing you receive. It is possible to pay as little as 5% down, but in a more traditional situation, you would be putting about 20% down. Government loans require a smaller down payment – I have seen (even in this tough lending environment!) no money down (from the buyer) loans. But since the mortgage meltdown, those are very few and far between. The more you put down, the more lenient your lender can be on underwriting issues. Plan on no more than twenty percent of the purchase price – but most of my buyers these days put twenty percent down.
Saving enough money for a down payment can seem like an unreachable goal for some. Remember though, if you already own a house, you can use your home equity toward a down payment on a new house. If you are a first time home buyer, start a savings program if you have not already. Also, a lot of first time home buyers receive help from parents and relatives for the purchase of their first time. Consider asking! It’s a good, effective mode of wealth transfer at a time when you most need it. If you DO go this route, know that there are special rules relating to when that money needs to come to you. Some loans will require that the funds are in YOUR account for a certain amount of time. Check into that FIRST if this is your plan, so that you know you are conforming to those rules.
Also, some builders of new homes will consider “sweat equity” in their selling price. This means that they will reduce the price and let you do some of the work (like painting) yourself. There are even more strategies to get your down payment lower, such as using a co-borrower or seller take-backs.