How much money do I need to buy a house?
If you’re even somewhat thinking about beginning the home buying process, it’s important to understand closing costs! This is the amount you’ll be paying in cash on the day of closing. These fees are required to be paid in order for you to take ownership of the house!
For starters, closing costs are going to vary depending on how much money you’ll be putting down (your downpayment), the type of loan you’ll be getting, and what the sales price of the home is. Closing costs include appraisal fees, survey fees, inspection fees, attorney fees, lender fees, tax service fees…the list goes on! Typically, closing costs will amount to 2% to 5% of the agreed upon sales price.
There are three main loan types. Below is what downpayment percentage you’d be looking at for each one:
FHA loan: 3.5% downpayment
VA loan: 0% downpayment
Conventional: 3% or 5% downpayment (depending on whether or not you’ve owned a home within the last 3 years)
Regardless of which type of financing you go with, you’ll still want to budget an extra 5% because this amount will be paid on top of your downpayment.
For example, whenever I purchased my home a few years ago, I chose to put 20% down. This was partly because I wanted to avoid having to pay PMI (private mortgage insurance) but also because I’m old school. I personally want to be debt free as soon as possible. I went with conventional financing and ended up having to pay an additional 2% on top of my 20% downpayment in order to cover my own closing costs. In other words, I had to bring 22% of the sales price to the closing table and not just the 20% downpayment.
Your lender will help you determine how much money you’ll need in order to cover closing costs.
As a side note, some sellers are willing to cover the buyers’ closing costs. This is also called seller concessions! I wouldn’t depend on this, though. Yes, everything is negotiable, but not all sellers are willing to pay an additional 2% to 5% on behalf of the buyer. In these instances, I always remind my buyers to think like a seller. How would you feel if you were in their shoes? What would you want to do? If you absolutely need the seller to help cover your closing costs, then be prepared to adjust the sales price in order to help accommodate the difference. In other words, if you make an offer on a house that’s $220,000 but you need $5,000 in closing cost assistance, that’s like an offer of $215,000 to the seller ($220,000 - $5,000 = $215,000). Instead, depending on the offer situation, I would recommend you consider offering $225,000 unless the house has been sitting on the market for months and months.
Here’s the thing…
All that to say, it’s important to have at least a general understanding of closing costs. If you are thinking about buying a house, hopefully this information will help you plan ahead so you can budget accordingly and actually be ready whenever the time comes. There are additional fees to be paid on top of the required downpayment. This is yet another reason why I have my buyers get pre-qualified before we ever start looking at houses! You don’t want to get the cart ahead of the horse, and you don’t want to cap your budget by not saving enough to cover closing costs in the event the seller is unwilling to assist you with them.
Buying a home is definitely costly, but it is absolutely worth it in the long run! I would encourage you to make financial sacrifices in order to start saving up for a home if owning a home is something you want to do. Maybe this looks like not going out to eat as much or postponing that pricey vacation until next year or PAYING OFF DEBT (debt-to-income ratio is a thing and a big setback for many folks). It will definitely be frustrating at times (especially when it seems nobody else is making those type of financial sacrifices), but I promise NOTHING COMPARES to homeownership.
I sacrificed financially for 4+ years in order to save up and buy my dream home…and I wouldn’t trade it for the world. If I had to go back and do it all over again, I absolutely would. My days are spent chasing chickens, watching sunsets, shooing geese from the yard, saving turtles from the road, and convincing the neighbors (cows) to love me.
I’m reminded every single day of God’s goodness, kindness, and grace…and the very sweet gift He has given me in a home! I think that’s why I love real estate as much as I do…because I know and understand what a home—the right home—does to the soul. That is what I want for other folks!
Kristin Koonce Burroughs, REALTOR®
(903)241-2608
kristinkoonce@gmail.com
BOLD Real Estate Group