Lately, we have had many people asking how much money is required to purchase a home this year. Just like most situations in life, each situation and person is different. There are many variables to answering this question. For example, if you are looking to purchase a very expensive half, you are going to need more money upfront than someone who is looking to purchase a less expensive home. Other factors include the location of the home and what type of mortgage you are wanting to use. Thankfully, more mortgage programs have actually decreased the amount of money needed to purchase a home. This has opened it up to more potential buyers qualifying.
A very rough estimate when it comes to how much money is needed to purchase a home is approximately eight to ten percent of the home purchase price. This rough estimate covers both the minimum down payment and the closing costs. We do want to remind you that it is also important to keep in mind how much your monthly mortgage payment will be, your utility bills, homeowner insurance, and property taxes. These costs are important in deciding if you can afford a particular home or not.
In addition to your down payment and closing costs, there is something called earnest money and cash reserves that need to be budgeted properly. As we already mentioned, both the down payment and closing costs are roughly up to ten percent of the cost of the home. However, some loans may require even more. It depends on the type of loan and the different requirements that they each have. (For example, if you have a low credit score, your down payment and closing costs may be higher than someone with a better credit score.)
Earnest money is a good-faith deposit that goes direct to your down payment when you close on your home.This amount can be up to five percent of the purchase price. After the seller accepts your offer and you sign the contract, you can make this payment. If for some reason the sale of the house falls through, you usually get your earnest money back.
Cash reserves is a certain amount of money that you have in your savings or investment account. The amount varies. The amount is based on your mortgage payment. Your lender wants to make sure you have the ability to pay up to six months of your mortgage. This is almost a “fall safe.”
As you can tell, it is very difficult to give you an exact amount of money that is required to purchase a home. There are so many variables that play a part.