Once upon a time there was a husband and wife ready to buy a house. So they did their research and found out they could move into the home with no down payment! They got 100% financing to buy their home. And they lived happily ever after.
These are the bedtime stories being told, or should I say rumors being spread, causing future homebuyers to believe that they can simply qualify with a credit score (of which we shall discuss at a later time) and not spend a dime. So this, my friends, is some advice from your friendly realtor on what financial expectations you should have when preparing to purchase a home.
**Disclaimer** There are a variety of loans available for buyers. This section on down-payments are specific to FHA loans. Other loans such as VA and USDA loans are offered at 100%.
Down-Payment: FHA loans offer a max 96.5% loan-to-value (LTV). This means you are responsible for coming up with the remaining 3.5% of the purchase price to buy the home. For example, a $150,000 home would require a $5,250 down-payment. (Calculation: 150,000 x 0.035 = $5,250)
Conventional loan down-payment requirements are currently 5% of the purchase price.
Pro: There are down-payment assistance programs that can cover some or all of your down-payment.
Con: Some of these programs require a second mortgage on the home. This comes along with a specific time frame that you have to occupy the property. If you move out any sooner, you will have to pay all or some of the amount borrowed back. Some of these programs require you to purchase a home within specific city or county limits and does not apply to any and every home. Some of these programs have income restrictions, so if you make too much money you cannot qualify.
Closing Costs: When buying a home, the time will come when the property ownership is transferred from the seller to the buyer. This is what we call your “closing”. When you get to closing, you will be expected to pay what is called “closing costs”. These costs usually include, but are not limited to, the loan origination fees, the closing attorney’s fees, prorated taxes, document preparation, title search, homeowner’s insurance, mortgage insurance, etc.
Pro: Sometimes you can get the seller of the home to agree to pay for some, or all of this. In some cases, the lender will allow this money to be “gifted” to you by a family member or friend.
Con: This money is not a set amount, and could vary based on the price of the home being purchased, the location of the home, the taxes on the home, etc. The amount could range anywhere between 3%-6%. You won’t know a close estimate until you find the home you are searching for.
Trust Money: I won’t go into what this is (refer back to my 2/21/18 blog post). However, this is usually about 1% of the purchase price. (Calculation: $150,000 x 0.01 = $1,500)
Pro: If you go through with the purchase, this is always your money that goes towards your purchase. You will see it reflected as a credit at closing.
Con: No real cons, but this money is paid after you and the seller have a binding contract. IT’s the first piece of money you pay.
Home Inspection: A home is one of the largest investments you will make in your life. It doesn’t make sense to make a $50,000+investment and not bother to pay $300 to see what’s wrong with it.
Cost is based on home size, but usually $225-$400.
Pro: You get to choose your inspector and they provide you with a report on just about everything going on with the house. If you decide you don’t want the house after the inspection, you get to walk away…with your trust money of course.
Con: If you decide not to get the house, you don’t get a refund on the cost of the inspection.
Termite Inspection: Memphis and surrounding areas have one of the highest termite findings in the state. Pay to get an inspection. Pros and cons are the same as the home inspection. Cost is usually $75-$200
Appraisal: The bank wants to know that the home is actually worth the loan money they’re giving you. This is usually lender-required. This is roughly $475-$550.
Under no circumstances am I saying these are the ONLY fees you will encounter. But, its safe to say they are pretty standard in our area. These are not exact numbers, simply rough estimates. I hope I gave you something you didn’t know before, and more importantly, I hope I didn’t deflate your balloon.
At the end of the day, knowledge is power.
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Hi. I'm Tamara Manuel. I am a wife, a mom, and a realtor. I am like many of you, in that I juggle and wear multiple hats at any given time. I am easily inspired by others and have been told that I inspire a few myself. This blog was created to help inspire you to purchase a home, or if nothing else, equip you with plenty of knowledge so that if you ever decide to, you will be an informed buyer or seller. I just have four requests of you...