By Jahn Beckler, AMS Mortgage
The first question I ask almost every buyer is how much they have to work with. The answer is usually something like "$30,000," said as if it all goes toward one thing. It doesn't.
Two buckets, not one
Bucket one is your down payment. How much depends on the program: 3% for a conventional first-time buyer, 3.5% for FHA, and 5% for a conventional loan if you've owned a primary residence in the last three years. On a $400,000 home, that's $12,000, $14,000 or $20,000.
Bucket two is your closing costs. Attorney, title insurance, several months of property taxes held in escrow, recording, notary and appraisal fees. They typically run 2% to 5% of the loan amount, whatever you put down.
What that looks like
Buy a $400,000 home at 3% down and the down payment is $12,000. Closing costs on that loan might be $12,000 to $15,000. That leaves very little of the $30,000, and you still want a cash reserve for the furnace that dies in month two.
What to do about it
- Ask your loan officer for a realistic closing cost estimate before you start house hunting.
- Ask your agent whether a seller concession is realistic in your market.
- Don't assume that putting down the most you can is the best move. Reserves matter too.
Jahn walks through the full breakdown, with the numbers, in his original article on VeeCasa.
Read the full article by Jahn Beckler →
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