Purchasing A House? Why You Will Need A Lot Of Cash On Hand
Are you looking into homes for sale? If so, you will need a lot of cash on hand to make the sale of the home go through. Here are three things you should be prepared to pay for that relate to the purchase of a home:
Down Payment
One of the largest expenses you will need to buy a home could be the down payment. Most loans require you to put down some type of down payment in order to qualify for the loan. While VA loans are the exception that doesn't require any type of down payment, expect to pay at least 3.5% for an FHA home loan and a credit score above 580.
Conventional mortgages also require a down payment, and it varies between mortgage lenders. On the high end, expect to not pay more than 20% for the down payment. 20% is where you see benefits, such as not having to pay for PMI (private mortgage insurance), and paying more than 20% will only reduce the size of the loan.
Closing Costs
While the seller will be paying the majority of the closing costs that relate to the agent's commission, there are other closing costs that you will be required to pay as the buyer. You'll need to cover all of the fees related to your mortgage, such as the origination fee and any points that you purchased to lower your interest rate.
However, other costs can either be paid by the seller or buyer, and it varies based on which state you are in. For instance, in Illinois, the seller is responsible for paying the costs related to title insurance and the survey expenses, while Vermont places those costs on the buyer. Other states split the costs equally or are negotiable.
Be aware of what your state laws are and if you'll need to pay more at closing because of it. You do not want to be surprised by unexpected closing costs that you cannot cover due to other expenses. You may need to provide a smaller down payment to cover closing costs.
Property Taxes
Your first property tax bill will come up sooner than you think. If you are handling the taxes yourself, then you will have some more time to pay the bill. However, those paying their taxes with money in escrow will need to pay for them in advance. Since taxes may not be known until the actual tax bill comes, it's common to be required to pay more than what is necessary to your escrow account so that you are covered.
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