So, you clicked on the link that said “How Much Cash Will I Need To Buy A House“, which means you’ve probably never purchased a home. Well, whether you have or haven’t it’s probably a good idea to look over potential costs of buying a house if you are considering buying one or two in the future. There are 2 main reasons why a buyer usually needs to bring cash to a closing when they are purchasing a house (one of them splits into 2 parts)
- Down Payment:
- When someone gets a loan (whether on a house or for something else) whoever is lending the money will probably require that you give them some money to show that you have some skin in the game (like the earnest money you’d put down to show you are serious about buying a house).
- Closing/Prepaid Costs:
- Closing Costs: a closing is the final step of the purchase process where the title is conveyed to the buyer. This process has several fees and charges that accumulate, and these should be clarified by your lender/loan officer. (getting in touch with a lender is the first thing you should do in the home buying process).
- Prepaid Costs: often forgotten or left off when describing cash needed at closing. Prepaids are amounts that are required by the lender to be paid at settlement, in advance of their due date. These may include taxes, accrued interest, association dues, mortgage insurance premiums and hazard insurance premiums.
On the website www.SmartAsset.com you can find a few tools to help you calculate things like how much cash you may need at closing. Below is a screenshot from me filling in that I wanted to buy a home for $150,000, and that I wanted to do a down payment of 5%. Now, if you can make a bigger down payment then you’ll save yourself some money, so long as you can afford in the short and long term to come up with that money. And coming up with a larger down payment will especially save you good money if you can put 20% down on a conventional loan, or get to 20% equity quickly – this will allow you to avoid paying Mortgage Insurance, which is a product of irresponsible lending in the somewhat recent past that was responsible for a lot of our economic troubles as a nation.Mortgage Insurance is an insurance paid by homeowners who seem more likely to not make their payment incase they are to be foreclosed upon. FHA loans (government based loan) almost all require Mortgage Insurance for the entirety of the loan – just FYI.
Ok, enough about Mortgage Insurance, we need to figure out how much money you need to close! Your next step is to connect with a lender, and I’d be more than happy to help hook you up with a great lender in my dad (Kent Carter – First Mortgage Co.), then your lender (whether it be my dad, or someone at your local bank) will help you figure out what you can afford, and you need to make a budget. You’ll want to figure out what monthly payment you can afford, and how much cash you’ll be able to bring to closing. Feel free to play around with this calculator, and if you have any questions about this or anything else just let me know!
Incase you have a moment to have this all further clarified here is a quick video with a pretty simple explanation: