So you're thinking about buying a house...but exactly how much money do you need to buy one? When you're buying a house, there are 3 major components that make up the total fund you need to make a purchase: (1) down payment, (2) closing costs, and (3) transactions costs.
If you don't feel like reading, just watch the video below.
There are many loan programs out there that you can choose from. If you're VA Loan eligible, this is the best option to make a 0% down purchase. For most first-time home buyer, you're most likely will be using a 3% down program. There are several variations of this loan and the one you should talk to your loan officer about is the 3% no PMI program.
Let's assume we are buying a $400k house. This means you will need 3% of $400k or $12,000 for down payment.
In Northern Virginia and for most loan programs, you're looking at about 3% of the Sales Price in Closing Costs (slightly more in Maryland).
Closing Costs consists of your Loan Origination fee, Settlement Company fee, Appraisal, Taxes, one year prepaid homeowner's insurance, Escrow funding, Property Taxes, Interest, and a bunch of other miscellaneous fees. In total, they add up to about 3%.
In our scenario, you will need 3% of $400k or $12,000 for Closing Costs. In a Balanced Market, you could ask the Seller to help you pay for some or all of the Closing Costs; but in our current market, it is unlikely that you will be able to get any credit.
As part of buying, you will have three upfront costs
- Earnest Money Deposit - In this area, the typical amount is 1% of purchase price. In our scenario, this is about $4,000. This money is paid to an Escrow Agent who will hold the money until the Closing Date. At Closing, you'll get this money back which you can use toward your Down Payment or Closing Costs.
- Inspection - Depending on what tests and inspections you're doing, you're looking at roughly between $300 to $2000. Most people will need about $500 for home inspection.
- Appraisal - After you start your Loan Application, you will have to order an Appraisal as part of your Loan Approval process. The Appraisal fee is paid to your Lender and it's typically about $500-600.
In our scenario, this adds up to $29,000 of which $4,000 will be credited back to you, so your net expense is about $25,000 to buy a $400k house.
If you have any question, please feel free to contact me.