Buying

How Much Money Do I Need to Purchase a Property?

Depending on the loan type as well as if the buyer will be asking for concessions, the amount needed to purchase the property varies with each property and each buyer. Each loan requires a percent down on the property as well as the closing costs and inspection fees. Inspections are requested by the buyer. Depending on the amount of inspections, costs may vary. The buyer may ask for closing costs to be covered by the seller and the seller may agree, but if the buyer does not ask for concessions, the buyer may need to also come up with an average of 3.5% of purchase price to put towards closing costs.

Closing Costs

  • Closing costs are usually about 3.5% of the purchase price of the property. Some buyers will ask for the seller to cover the closing costs but when there are multiple offers on a property, the buyer paying their own closing costs will have a better chance of getting their offer accepted.

For Example:

Buyer is qualified for up to $200,000.00. They are purchasing the property with a FHA Loan which requires 3.5% down. The buyer loves the house and there are multiple offers, they may need to pay for closing costs as well to outbid other buyers. How much will the buyer need to purchase the home?

Property Costs                                                                  $180,000.00

 

FHA Down Payment is 3.5%                                         $   6,300.00

($180,000.00 x 0.035)

Closing Cost on average is 3.5%                                 $   6,300.00

($180,000.00 x 0.035)

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­________________________________________________________

Total Cost                                                                            $12,600.00

 

Asking for concessions of 3.5% towards closing costs would allow the buyer to purchase the property with a down payment of $6,300.00

The buyer will have to decide if they would prefer to pay the additional $6,300.00 or see if the offer will get accepted by the seller which asks the seller if they will pay for the buyers closing costs.

These are options buyers need to consider when purchasing a property along with the additional costs of inspections.

Down Payments

Every mortgage lender has their own guidelines to follow, so credit scores and other criteria may be different with each lender. This is something that you as a buyer should look into to make sure you get the best option that fits your needs. Make sure you qualify for the loan you are considering. Speak to a lender for more information.

These are most of the options a buyer has:

  • No Down Payments

There are a couple programs that if you meet specific guidelines you may be able to purchase a home with no money down. This means you qualify for 100% financing. The most used loan types used to purchase properties are listed below.

Examples of Loan Programs:

  • VA Loans
  • USDA Loans
  • FHA Down Payments
    • FHA 3.5% Down
  • Conventional Down Payments
    • Conventional 3% Down
    • Conventional 5% Down
    • Conventional 10% Down
    • Conventional 20% Down

***Guidelines vary for each loan and may mean that buyers may be ineligible to qualify under specific loans.

Types of Loans and Qualifications

There are many types of loans a buyer can purchase a home with. There is no one particular loan type that is recommended because it depends on the buyer qualifying under the loan as well as how much money the buyer is comfortable with putting down on a home. For this reason we have asked a lender to give us an example of their requirements for each set of loans. Please be advised that these qualifications are specific to one lender. Each lender has specific guidelines that they use to qualify a buyer. At any given time, these qualifications may change due to the market.

Types of Loans:

USDA-

$0 down

102% financing (2% funding fee can be financed into the loan)

640 FICO

up to 6% seller contribution

Reserves are not required. ( Income limits vary depending on the area and number of people in the household)

FHA-

3.5% down

620 FICO

monthly mortgage insurance is 1.15% of the purchase price

up to 6% seller contribution

reserves are not required

entire down payment AND closing costs can be gifted.

VA-

Funding Fee is 1.40% or less of the loan depending on the type of veteran and can be financed into the loan

640 FICO

4% seller contribution

reserved not required on 1 unit properties.

CONVENTIONAL-

3% down:

720 FICO

Monthly mortgage insurance (1.15%-1.53%) depends on the FICO score

3% seller contribution

 

5% down:

700 FICO

Monthly mortgage insurance (.72%-1.32%) depends on the FICO score

3% seller contribution

 

20% down:

620 FICO

No monthly mortgage insurance

6% seller contribution

Calculate Your Income vs Debt

If you are thinking about applying for a mortgage loan, you need to figure out how much income you earn verses how much debt you owe to determine how large of a loan you qualify for. The first step is to determine your gross monthly income, this income needs to be documented on your tax returns or you will not be able to use that income as a source to qualify. If you have real estate properties, stocks, or you take a loss from a business you own, be aware that any income you write off for tax purposes could affect the amount of a loan you qualify for. If you have questions regarding how much you qualify for based off your taxes, a good loan officer can answer those questions for you.

The second step to follow is to calculate your monthly debt which should include minimum monthly payments on credit card bills, any loans, car loans, personal debt or any ongoing monthly payments such as child support or alimony. Your monthly housing expenses principle, interest, taxes and insurance should not be more than 28% of your gross monthly income. (This is an average. This percentage may vary.) A loan officer will be able to determine how much of your debt to income ratios can be based on the type of financing that you choose to qualify for.

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