How much cash do I need?

Question

Approximately how much cash would I need to pay for the upfront fees, etc for buying a home in the 400k price range?

This will be my first home purchase. Some loans say they require at least 3% down payment (I guess some also offer 100% financing). How about closing costs? I also read somewhere that I need to have enough cash to cover the first two months mortgage.

The reason I ask is because I have a lump of money (say $10k) and I need to know whether I'll need this for "these" costs or if I can use that to pay off my bills/car note.

Thanks

Answer 1

You'll need more than $10K probably. You'll have to pay the remaining property and school taxes for the year. Plus you'll need to put some in escrow. You'll have loan origination fees, processing fees, appraisal fees, inspection costs, title insurance, possibly some points, and since you're not putting 20% down you'll have to pay mortgage insurance. You'll also have to pay for a year of homeowner's insurance. There are tons of closing costs that all add up. In PA there's a 1% real estate transfer tax too.

A Realtor in your state can give you a pretty good estimate of how much cash you'll need based on price of home and down payment and tax rates. That helps a lot.

Note: Realtors' commissions are paid by the seller at closing, not the buyer. (Though the seller no doubt inflates the price of the house to cover these costs.)

Answer 2

It's a great question first off. Many people are uninformed about the subject and take bad advice. The two months of reserves is just used in qualifying in the loan. It is less of a risk for the lender if you have some cash(or some other type of liquid asset, 401k or stocks) in the bank.

I wouldn't bother with the 3% down, the benefit doesn't out weigh the benefit to having the security of 10k in the bank.

I'm a big fan of the 100% financing loan, then you can negotiate the closing costs with the seller(get what you can out of the seller then jack up the price of the purchase for the remainder of the costs..this will net the seller the same amount of proceeds). Then you get in the house with your cash and can manage from that point however you like.

I would say the costs of a 400K loan would be typically around 12-15k. It's generally around 3-4% of the loan amount.

Answer 3

There is a lot more to this than a simple answer, as you already conceded, several companies offer different programs. The most common is the Conventinal loan. That type of loan mandates 5% down. There is also an FHA, which is a government controlled type of loan. There are certain qualifications for this loan, and they mandate 3% down. As for closing costs, this will very with the amount of the home purchase also. This is usually the fees for the title company to process the deeds, etc and it includes the commisions to the realtor, which in Texas is typically 3% also. This is really a question to ask the lending institution for the most part, as they will all have different financing options.

Answer 4

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