Save Before You Buy
Saving money is a very important step in home ownership. You will need money for several different needs during the process. Money in the bank will also show those making decisions on your loan that you have established a level of responsibility with your income, that you aren’t living paycheck-to-paycheck. It will prove to you that you don’t have to spend every dime you get.
For the lending process you will need money for:
Downpayment - depending on the loan you are applying for your doenpayment can be between 3%-10%. FHA loans and HomePath loans require 3% down. Conventional loans, Freddie and Fannie loans require at least 5% down. Investment Properties require at least 10% down and depending on the property or borrower you msy need up to 20% down.
Closing Costs - Every loan has closing costs associated with a real estate closing. These costs can run between $1500 - $6500 for properties below $250k. Some owners offer to pay all or a portion of the closing costs depending on how you negotiate the contract.
Interest Rate Buydown - One option you will have is a rate buydown. With extra cash you can buydown your rate from 5.5% to 4.75%, depending on the loan and the bond market at any given time it will determine the cost of the buydown.
Reserves - This refers to the amount of money you will have left over in the bank after the costs of the loan are calculated. Depending on the loan you may need to have 2-12 months of payments (PITI) in reserve. Investment loans typically require 6-12 months. Owner occupied loans are typically in the 2-6 month range.
Other expenses include moving costs, property upfitting, repairs and who know what else may pop up. As we’ve seen in recent years its always better to be safe than sorry. So start saving today so you can feel secure when you buy your home.
