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How Much $$ Do I REALLY Need to Buy a House?

I recently created this info [2008] for a new first time home buyer when he asked what he would need to buy a home in Hawaii (he currently makes about $3600 a month income....and had about $5000 saved up):


1. Ask the Realtor for the minimal house and condo prices available for your area

2. You will want to have a minimum of 3.5% of the purchase price of the house available for the down payment in addition to another 2-3% in closing costs. The seller can pay the closing costs portion (up to 6%) if they are able and are negotiated to do so by your Realtor.

The mortgage company I originate loans might also be able to have your new mortgage bank pay the closing costs if you are in a fast moving market and might not win the house offer if you ask for closing costs in addition to an offer discount.

3. The down payment/closing costs comes from your normal checking and/or savings accounts (you want to be sure there are no....

....unusually larger deposits that immediately show up in your regular accounts).

4. The down payment/closing costs can also be a gift from an immediate family member and must be able to be documented already in the gift donor's account...and not a loan (can be an equity account, stocks/bonds account, checking/savings etc...but not borrowed at all).

5. Ask the Realtor if there are any community programs that still have funds left for first time buyers and what the amounts are and the income requirements if you qualify...and if they are like a loan and will have a monthly payment amount to them...and if they can be used for both the down payment requirement and the closing costs.

For a $300,000 purchase: ***

1. Down payment of $10,500

2. Approximate closing costs will vary depending on the date you close, the title costs for your area, the property taxes/homeowner insurance actual amounts, if you need any discount points to lower your monthly payment (if available)....but approx: $6,000- $7,000.

Total cash to close: $17,500 more or less

3. Monthly payment approx: $2011 as follows ***:

a. Principle/Interest of 96.5% of purchase price plus including FHA upfront fee at rate of 3.875%: $1385.16
b. Homeowners insurance if about $1080 a year: $90
c. Property tax if $2800 a year: $234
d. FHA mortgage insurance premium: $301.56 [for 2008]
e. (There could also be an association fee for a condo or development area HOA: $40-$250 or more)

4. For this amount of monthly payment, you need to show about $4600-$4700 or more a month gross income (income before taxes are taken out) and AFTER subtracting any credit report liabilities (truck payment, credit card payments, loans payments, etc.)

You can have a co-borrower on the loan...even a non-occupying co-borrower. If you do, they should also have an ok FICO score, low amount of debt and a regular W-2 type job or documented retirement income (self-employed income can be more difficult to qualify right now).

5. Your bank account and non-deposited gifts should be at least the $12,000 or more for the down payment, inspections, a little extra (as long as your closing fees can come from another source)...more is better and you don't want to be cash poor at the end. Again, the seller can be negotiated to pay the closing costs part, or a specialty mortgage bank.

Best to have a couple of months of payments left over in your accounts after closing: about $5000 more or so with a $300,000 purchase. ($16,000 to $27,000 in your accounts all told).

6. You will use some of that $10,500 down payment as earnest money when you make an offer so you will want some of those funds already in an account to use for that...usually $1000-$4000.

7. You will need a credit card with $400-$500 to pay upfront for an appraisal (or more depending on the city)... this can be refunded at closing by the seller if agreed by them.

Hope this helps in your planning. Keep saving, document any large deposits, and try not to charge anything else of significance on your credit cards before you are finished buying the home...and get help for the down payment/closing costs and larger monthly home expense payment.

***[All calculations are estimates only and not indicative of what rates or amounts might be available to any borrowers on any given day and of varying qualifications.]


This page contains a single entry from the blog posted on November 10, 2008 5:31 PM.

The previous post in this blog was And for those SFH Investor Clients...PMI, FICO Rules, etc..

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