SAVING TO BUY A HOME – Part 1:
How Much Money Do I Need To Buy My First Home?
Gone are the days of 100% financing options, where all you needed was money for a small deposit and a home inspection. You could just about “roll” everything else into your mortgage. Not the case anymore. Things have changed, so to buy a house, we have to save up; just like the good ol’ days! The trade-off is that now, home prices are down and mortgage rates are WAY down. So, it’s definitely worth your diligence to save up for that killer deal.
Here’s a modest list of some of the costs associated with buying a home*:
1.) Buyers’ Agent: $0: This is the best money you’ll NEVER spend! A Buyers’ Agent will work hard for you, educating you on market conditions, showing you properties, negotiating the best price, and basically guiding you through the entire process from start to finish. This extremely valuable service is priceless…. literally! In Massachusetts, Buyer’s Agents typically get paid when you close on a property through a co-broke fee paid by the sellers – not the buyer.
2.) Initial Deposit: usually around $500-$1,000. Can be more depending upon how strong you want to present yourself. When you close on the property, that amount comes off of your total cost of the property and is part of your total down payment.
3.) Home Inspection: $350-$500 and up, depending upon the size and age of the home. In addition to a standard home inspection, you can add on other tests such as radon, water, lead paint testing, etc., which will add to the total cost of your home inspection.
4.) Purchase and Sale Deposit: Another, more substantial deposit is due when you sign the Purchase and Sale Agreement, which is within 14 days from the day your offer to purchase is accepted. The amount can vary, depending upon what you are putting down total. It is customary to put 5% of the purchase price down at the P&S (for a $200,000 home, that would be $10,000 total, so, if you put $1,000 down for your initial deposit, here, you’d put down $9,000 to total a 5% down payment). However, you are financing through FHA, program options offer as little as 3.5% down – ask your lender/mortgage broker if you qualify.
5.) Bank Appraisal: Your mortgage broker will let you know when the appraisal is happening and how much you’ll owe. The bank must have a professional appraisal completed to make sure that the house you’re buying is actually worth what you’re paying for it. In my experience, bank appraisals typically cost approximately $450.
6.) First Year of Home Owners Insurance: In order to close on your new home, you will need to purchase a full year of homeowners insurance to be paid in full prior to closing. Your insurance representative will provide a copy of your policy to submit to your lender for final review of your loan application. Policy price can vary depending on value of home and policy coverage chosen. For our example, we will use $700-1,200 as a ball park.
BREAKDOWN BEFORE CLOSING: Approximately $1,500-2,150 for home inspection, appraisal and first year of home owner’s insurance. Plus $7,500-$10,000 in deposit money based on a $200,000 purchase price and a 3.5% – 5% down payment. So, the total money needed before closing ranges from $9,000-$11,200
AT THE CLOSING: Yipee, this is the day the home transfers to the new homeowners! There are many closing costs and pre-paids that your mortgage broker will go over with you ahead of time. Be sure to ask questions if there are items on the list that you do not understand. Some buyers can still choose to “roll” a good portion of their closing costs into their mortgage, if the bank appraisal comes in high enough and the sellers agree to a “closing cost credit.” However, if this is not an option for you, you will need to pay your closing costs up front at the time of closing. Closing costs can vary quite a bit, but a ballpark figure is approximately $3,000-$5,000, give or take. Again, this is something that you would need to go over thoroughly with your mortgage broker ahead of time to get a more accurate figure.
So, if you can save up around $12,000-$16,200 – you’ll be in business to buy your very first home.
You might be thinking, “Holy Cannoli! That’s a lot of money! How will I ever save up that much?” Which brings us to the next part of the blog series… “Saving Up to Buy a Home – Part 2: Playing house.”
*The amounts on this list are only APPROXIMATE costs and are specific to the Worcester County area of Massachusetts. Costs may be higher or lower than listed. There may be additional costs that buyers may be required to pay that are not included on this list.
– Authored by Joanna King Conety of Tangney Properties, Check out Joanna’s bio on the Meet Our Agents tab.