How Much Money Do I Need to Buy a Home?
“My cousin’s sister’s brother-in-law’s best friend’s friend twice removed got in a house for no money and he got $5000 at closing!”
I hear that type of thing all the time. That scenario never really happens – you can’t get money back, but it IS possible to buy a home with no money down!
Let’s talk about what does happen and what options are out there for you.
First, let’s understand what monies are included in purchasing a home. You hear things like 3% down, 5% down, 10% down, 20% down…heck even 0 down. What does that really mean for the amount of money you need? I’m sure you’re thinking that it’s pretty intuitive – “5% down means I take the sales price and multiply by 5%”, right? Sort of.
The money you need to come to closing with consists of down payment (that’s the 5%), closing costs (the actual costs associated with the purchase) and prepaids (your property taxes and homeowners insurance). Closing costs include loan costs, title fees, appraisal fees, credit report fees, home warranty, HOA transfer fees and a few other potential costs. Prepaids are the small account that is set up for you so that your taxes and insurance payments are included in your mortgage payment. There is a small reserve kept for both taxes and insurance as well as your insurance being paid a year in advance.
When you add up the closing costs and prepaids, you will usually land between $4000 and $6000 depending on the price of the home.
Let’s say that you are buying a $200,000 home with 5% down and the closing costs/prepaids come to $5000. Your total money needed is $15,000. (200,000 x .05 plus the 5000)
With a good Realtor and Lender you can actually get your closing costs and prepaids paid for by the seller. It’s simply a negotiation.
Now that you understand how ‘cash to close’ works, you may be asking how you can come in with no money at all.
There are a few loans available that allow 0 down payment as well as down payment assistance programs that will make your down payment for you! Please contact us for details.