How much down payment do I need?
Down payments for home loans can be obtained from various sources (much to the relief of your wealthy aunt!) Review these allowable sources for a down payment, perhaps you have more money to use toward your new home.
Mortgage Down Payment
Allowable sources for obtaining your down-payment
When you are adding up all of the costs to purchase and need to find more funds, you have several options.
* Equity from the home you already own. Sell the home and use the proceeds to move into your next home. Or take out a second, rent the original home and use the equity to leverage your new home.
* Home Equity Loan-Family member may have a considerable amount of equity built up in their own home that they were planning to borrow against in order to gift money to you. At some point in time it is beneficial for parents to start “gifting” to their children, as a form of tax advantage.
* Life Insurance – If you have a cash value policy, it may have matured enough to provide additional funds to your down payment.
* Stocks and bonds – You can either sell the stocks and bonds or use them as collateral on a loan for down payment.
* Company Profit Sharing or Saving Plan – Check with your employer to see about the possibility of withdrawing or borrowing from this account.
* Retirement Savings Plan (401K) – If your employer offers this type of plan, inquire about the possibility of withdrawing or borrowing from this account.
Do I need money “up front” before closing?
A short and simple answer is “yes!” How much depends on various things, learn about what that might be, and don’t forget to bring the checkbook!
Understanding Earnest Money
What “up front” expenses can I expect when purchasing a home?
So that you will not be placed in an uncomfortable position when you purchase a home, an understanding of the earnest money deposit is of great importance. At the time a written offer on a property is initiated, you will be required by the seller to include a personal or cashier’s check for “earnest money”.
Your money will be kept in the trust of the real estate company (or a designated title company) handling the listing and not turned over to the seller. Your deposit represents your sincerity in the attempt to purchase and is refundable if the offer is not accepted, or if you loan is not approved, providing all the necessary dates are met in a timely manner).
When do you pay?
You will submit earnest money with the purchase offer, anywhere from $1000 and up. The more expensive the home the higher the earnest deposit. The amount is pre-determined by the seller in the listing agreement with the listing agent and is published in the MLS. The amount like most elements of a contract is negotiable, however the more money you put down, the more serious your intent will appear to the seller. This check will be held by the listing broker until contract agreement, at which time your check will be deposited into the listing broker (or title companies’) trust account. The listing broker brings these funds to the closing.
Loan Application
Loan application takes place anytime before selecting a home, but no later than five to seven days after the seller and the buyer agree. Fees are paid to the lender for credit reports and appraisals, approximately $300 to $400
Home Inspections
It is extremely wise and much advised to have your home inspected by a qualified inspector. Common practice to to use a single inspector for this task, however many times when purchasing an “older” home or a property that has questionable elements, a wiser decision is to use a professional in the field of question. For example, the property may have obvious roof damage. A normal inspector will only tell you the roof needs replacement, while a roof inspector will tell you how extensive the damage is and give an estimate as to the expense.
Estimated inspection fees
* Home inspection: $150 – $300
* Radon testing: $25 -$200
* Lead $300 -$500
* Mold $125+
* Roof $50
Agent Fees
The agent fee for the buyer is paid by the listing broker (the seller pays the listing broker as per their listing agreement and the listing broker offers a % (called a co-operation fee) to the selling agent) The only exception to this is when a certain fee is agreed upon, in writing, in the Buyer Agency Agreement.
At Closing (30-60 days later)
Balance of your down payment plus closing costs. Closing costs range from approximately 2.5% to 3.5% of your loan amount.
NOTE: There are many ways to structure financing, some include rolling your closing costs into the loan, or even having the seller pay them. In any event the above outline is what to expect during a “normal” transaction. If you want or need to great “creative” there are numerous ways to do so. Call me and we can discuss alternatives!
