Buying a house: how much liquid cash is NEEDED?

[Colleen27]

I've always heard 10% as a good rule of thumb but I'm not sure how well that translates when the house has a purchase price that high. It held pretty true for both our homes but we bought for 99K and then for 25K, so a few hundred dollars here and there for things like inspections, utility turn-ons, and recording fees did actually add up to a couple percent of the purchase price but would only be a drop in the bucket relative to a 500K home.

 

[DLgal]

There are other things VA loans won't cover too, just so you are aware. We had one for our first home and we couldn't purchase a property because it was off a private gravel road. I know someone else who couldn't purchase a property because it was older and in good repair but there was some issues with easements? Good to check the requirements first before you look so you don't get your heart set on a property you can't get.

As far as how much you need, whatever figure you come up with add more! There are so many expenses that first year in a new home- some like paint can be put off, but there are many you'll want or need. Our first home we need a deposit for our electric company for them to turn it on, or home didn't even have a light bulb in it... blinds, curtains, hardware, there was always something we were running to the store for!

Thanks. Yes, I was aware of some of the property type restrictions for VA loans.

We would be purchasing a home in a highly developed area, and the home would likely be built in 2000 or later. I don't anticipate the VA having any particular issues with the types of homes or location we are looking at.

 

[jel0511]

Just to clarify further, I think we can comfortably save up at least $40K, possibly up to $75K if we rent for an additional year rather than buying in 2015.

I had read something that said you should have 5-7% of a home's selling price stashed away in the bank for "expenses" related to buying a home, independent of a down payment, and that seemed really high to me, so that is why I've asked this question.

Assuming a $500k house, we would really need $25-30K JUST to get the keys?

Seems like a lot.

It gets eaten up quickly... You'll see... The one thing I haven't seen mentioned in closing costs is that you usually have to pay up to 3 months of real estate taxes at closing. You have to reimburse the current owner for what they might have already paid and usually at least the next quarter to the township. So if the property has high property taxes (say 12k per year) that's an additional 3k in addition to all the usual expenses. Title insurance can be pricy too. I think ours was like 2k, add in attorney fees, inspections, homeowners, etc. You could easily be close to 10k and haven't even bought anything for the house yet......

 

[Egdisney]

I am currently buying a house with a no money down USDA loan. Lender is paying $1000 of closing, seller's are paying $3000. According to the good faith estimate, we will need less than $300 at closing. We put down $500 in earnest money, and the inspection will cost $300. That includes termite. If we do radon it is another $100. We will need about $1200 of our own money. Some lenders are cheaper as well. The more your house is, the more your closing costs are. A realtor probably isn't going to spend much time with you if you are looking to buy in 2 years. I would recommend sitting down with a lender. They can look over your credit and tell you what you need to fix so that you get the best rates. Even in a seller's market you can often get closing costs paid with a strong offer. I bought my first house 5 years ago and was able to get closing costs paid with a full price offer. At that time my realtor only had us give a $50 earnest deposit. A large one really isn't necessary.

 

[DLgal]

I am currently buying a house with a no money down USDA loan. Lender is paying $1000 of closing, seller's are paying $3000. According to the good faith estimate, we will need less than $300 at closing. We put down $500 in earnest money, and the inspection will cost $300. That includes termite. If we do radon it is another $100. We will need about $1200 of our own money. Some lenders are cheaper as well. The more your house is, the more your closing costs are. A realtor probably isn't going to spend much time with you if you are looking to buy in 2 years. I would recommend sitting down with a lender. They can look over your credit and tell you what you need to fix so that you get the best rates. Even in a seller's market you can often get closing costs paid with a strong offer. I bought my first house 5 years ago and was able to get closing costs paid with a full price offer. At that time my realtor only had us give a $50 earnest deposit. A large one really isn't necessary.

Thank you for sharing your experience.

At this time, it's mostly a pipe dream. We are hoping to get stationed in Southern CA when we are due for orders in 2 years (we were previously stationed there years and DH wants to finish out his career there and settle down in that area). It might not happen, but if it does, we want to be prepared.

We are nowhere near close to contacting Realtors yet. We are just keeping an eye on the listings to get a good idea of selling prices at the types of homes we want.

As for contacting lenders, we have done that. We have excellent credit, very little consumer debt (under $5k) and a solid source of income (military pay). We basically want to take advantage of the last 4 years of having a housing allowance and putting that into a house we own, rather than another rental. We have been told that we would have NO problem qualifying for a Jumbo VA loan right now, with essentially no savings, but we would need to have cash available for the home buying process, so we have been advised to save aggressively over the next couple of years.

 

[lovemygoofy]

If you are a military family, you can get one on one financial counseling at your military instalation that will help you step by step of trying to figure out the house buying process.

 

[pocomom]

Just to clarify further, I think we can comfortably save up at least $40K, possibly up to $75K if we rent for an additional year rather than buying in 2015.

I had read something that said you should have 5-7% of a home's selling price stashed away in the bank for "expenses" related to buying a home, independent of a down payment, and that seemed really high to me, so that is why I've asked this question.

Assuming a $500k house, we would really need $25-30K JUST to get the keys?

Seems like a lot.

I think that was probably information geared to a typical first time buyer who would be purchasing a less costly home. Our first home was 150K, we easily needed more than 5% of that in "others". At 500k I think less would probably be right.

 

[MHSweb79]

It might be a good idea to figure out how much your mortgage is likely to be, then put that amount into savings every month for the next couple of years. That way, you will not only be building up your nest egg, but you'll be seeing how well you can live with that kind of payment coming out of your earnings.

You may find that it's entirely doable, or you may find that you'd rather spend less and look for a more modest home.

 

[mistysue]

As a couple have started to say, if you are escrowing you will need to figure out what the taxes and insurance will be for the area you are moving to. You may end up needing to give anywhere from $1,000 to $10,000 depending on how high those are and the cushion they want.

Then just try to think through basic maintenance that you don't have to do now. Lawn mower? Additional utilities? Appliances? Have something extra around because in most cases SOMETHING happens just after you move in. I bought my house and the yard flooded requiring about $15,000 of repair work in the first year. Nobody saw that coming. Then when you move in will you need curtains? Bath mats? rugs? More furniture? It adds up so fast.

You will probably also be subjected to PMI. If you can save that much money as quickly as you say, put off buying another year or two and get out of that PMI crap. They just revised the laws and you will be paying the PMI for the life of the loan- even if you pay it down! My home is 20% of that value and mine is $50/month... so yours may add up quickly.

 

[DLgal]

It might be a good idea to figure out how much your mortgage is likely to be, then put that amount into savings every month for the next couple of years. That way, you will not only be building up your nest egg, but you'll be seeing how well you can live with that kind of payment coming out of your earnings.

You may find that it's entirely doable, or you may find that you'd rather spend less and look for a more modest home.

You meant to say, put the difference between our estimated mortgage payment and our current housing payment into savings, right? Because there is no way we can put aside that much! We pay $2400/no in rent now. Our utilities cost about $500. We are living in a WAY bigger house than we intend to buy, so I expect utilities to cost about the same or less. We can easily afford a total housing cost (mortgage, HOA, insurance, property taxes, etc.) of up to $4000 but I'd like to keep it closer to $3000-3500.

 

[DLgal]

As a couple have started to say, if you are escrowing you will need to figure out what the taxes and insurance will be for the area you are moving to. You may end up needing to give anywhere from $1,000 to $10,000 depending on how high those are and the cushion they want.

Then just try to think through basic maintenance that you don't have to do now. Lawn mower? Additional utilities? Appliances? Have something extra around because in most cases SOMETHING happens just after you move in. I bought my house and the yard flooded requiring about $15,000 of repair work in the first year. Nobody saw that coming. Then when you move in will you need curtains? Bath mats? rugs? More furniture? It adds up so fast.

You will probably also be subjected to PMI. If you can save that much money as quickly as you say, put off buying another year or two and get out of that PMI crap. They just revised the laws and you will be paying the PMI for the life of the loan- even if you pay it down! My home is 20% of that value and mine is $50/month... so yours may add up quickly.

No PMI with VA loans. The VA guarantees the loan.

 

[DLgal]

Then just try to think through basic maintenance that you don't have to do now. Lawn mower? Additional utilities? Appliances? Have something extra around because in most cases SOMETHING happens just after you move in. I bought my house and the yard flooded requiring about $15,000 of repair work in the first year. Nobody saw that coming. Then when you move in will you need curtains? Bath mats? rugs? More furniture? It adds up so fast.

Yes, I have thought of that. I would like to have $10k or so set aside specifically for appliances and general home decor stuff. Although, we are living in a 4000sq ft house and we have probably TOO MUCH furniture to fit in a 1500 sq ft townhouse! All of it is mostly new so I can't imagine needing to buy anything, except perhaps a couch. We had to buy a W/D when we moved here so those are both less than 2 yrs old and will be going with us.

As for a yard.. we don't want one! That's one thing we've realized after living in this huge house for 2 years! This house is too big and we HATE yard work! We long for our old, tiny 1200 sq ft apartment many days.

 

[FLCyndi]

I don't think there is PMI on VA loans.

 

[lost*in*cyberspace]

Okay, couple of questions.

First of all, why would a seller care if it's a VA loan? The bank issues the loan, and the seller has nothing to do with that....

Different types of loans require different things from the seller. It has been my experience buying homes that there are many sellers who won't accept VA loans for several reasons. You may have no problems, just be aware it can happen. You may find these links helpful:

http://www.ehow.com/info_8423553_va-can-seller-not-accept.html

http://www.veteranstoday.com/2009/05/14/va-loan-no-guarantee-to-buying-a-home/

http://www.westcoerealtors.com/blog/uncategorized/vets-why-a-va-loan-is-hurting-you/

 

[mistysue]

Yes, I have thought of that. I would like to have $10k or so set aside specifically for appliances and general home decor stuff. Although, we are living in a 4000sq ft house and we have probably TOO MUCH furniture to fit in a 1500 sq ft townhouse! All of it is mostly new so I can't imagine needing to buy anything, except perhaps a couch. We had to buy a W/D when we moved here so those are both less than 2 yrs old and will be going with us.

As for a yard.. we don't want one! That's one thing we've realized after living in this huge house for 2 years! This house is too big and we HATE yard work! We long for our old, tiny 1200 sq ft apartment many days.

With this information, it sounds like buying a house may be a bit of a downgrade in size from your current rental, so you may be able to have a good yard sale and even make back a chunk of your expenses! That sounds awesome, I am daydreaming the possibilities for you.

We got ourselves into a strange pickle with the yard work too. We *want* to be yard work people, but we really aren't. What we end up with are overgrown garden beds and decaying yard furniture. When I'm slow at work I draw up no-maintenance landscaping ideas.
Last fall I got smart and started planting bushes and things we don't have to fuss with, our lawn service will trim them every fall for next to nothing.

 

[ekatiel]

Both my husband and I are eligible for VA loans, but haven't used them to buy a house. You might be surprised to know a lot of sellers won't accept VA loans.

It's impossible to answer your question with any accuracy, as it all depends on the price of the house and the deal you work out with your seller.

I have never heard of sellers not wanting to accept VA loans. It's still a buyer's market in most part of the country-- sellers are going to accept whoever has a reasonable offer.

Just to clarify further, I think we can comfortably save up at least $40K, possibly up to $75K if we rent for an additional year rather than buying in 2015.

I had read something that said you should have 5-7% of a home's selling price stashed away in the bank for "expenses" related to buying a home, independent of a down payment, and that seemed really high to me, so that is why I've asked this question.

Assuming a $500k house, we would really need $25-30K JUST to get the keys?

Seems like a lot.

I don't think you are going to need anywhere NEAR that amount. We've bought 3 houses with VA loans, sold our last house in a cruddy market 2 years ago-- luckily we weren't upside down, but we walked away with less than 1K at the table (after putting 10K down, ON top of paying the funding fee, etc, out right, and paying the mortgage for 5 years). This time, because we had so little cash to work with, we had the seller pay 6K in closing costs and rolled the funding fee into the loan. I don't remember how much cash we brought to the table, but I can guarantee it was less than 5K, and that was for a $240K loan. VA will let you roll the funding fee, and maybe even some closing costs (I think) into the loan, just remember, your house has to appraise for more than the total amount of the loan, so the house would need to appraise for more than you are paying for it to be able to roll in other costs. --Katie

 

[chiefmickeymouse]

We bought our house with a VA loan six months ago. The VA inspection is supposed to be more detailed than a regular inspection. The transaction takes a little longer than a regular loan, but no PMI, no money down is required. BUT, we paid $1000 earnest money, $350 inspection, $350 architectural inspection (the house had foundation repair) and about $7000 in closing costs. We took points for a lower interest rate, so we could have paid less in closing. Also, remember you will have to pay the VA funding fee, which in our case was about $6000 and was added into the loan. If the house doesn't appraise that high, you'll have to pay that out of pocket. If you have a VA disability rating, it is waived.

 

[a1tinkfans]

Anyone that says they have no money to put down on a home makes me nervous...The economy is not stable, and there are so many foreclosures out there and so many homes that have not even hit the block yet because they are still pending in short status....


Id suggest reaching out to a re agent who is familiar with the loan you are interested in and the amount and area in which you are looking so that you can be evaluated for loan amounts, get a better handle on what to expect for out of pocket costs and just familiarize yourself with what to expect. I think youll feel more confident knowing what what you can and cant do.
And I do agree, not everyone will accept a VA loan buyer for the purchase of their home...they take longer traditionally and are more risky for the seller.

Wishing you Best of Luck Op.....

 

[starry_solo]

I am in Southern California so maybe I can help you.

You will need the pro-rate share of property taxes. Assuming the house you buy at 550K has no Mello-Roos, special assessments, etc., annual property taxes will be at least 5500 (1% of purchase price). You will need to come up with the pro-rata share of it at the time that you purchase the house. Taxes are paid in December and April for the property tax year (so this property tax year, taxes were paid in December 2012 and April 2013). December's payment covers July 1st to December 31st. April's payment covers January 1st to June 30th (runs on a July 1st to June 30th fiscal year). If you close in April, you'd be responsible for paying from the date you closed (let's say April 15th to June 30th).

Assuming there are special assessments, those can be another 3-5K (these special assessments/bonds pay for various county/city projects).

So, for property taxes alone, I would try to save at least 5K.

Home inspection is about 300-500.

Homeowner's insurance - that has to be paid one year in advance and you will have to provide proof of it before escrow will close. Since you're looking at a condo or townhome, you need to make sure you can get a policy with your company. I assume you have USAA and I think they cover it, just make sure they know the policy is for "walls in" [since the outer walls should be covered by the association.] Based upon the price of the property, I'd estimate that to be about $1200-1500 (a friend bought a 400K house and has USAA insurance and his insurance costs about $1400).

I also think one month of mortgage payments (or at least the interest) was due.

As I recall, he had to come up with about $10,000 for closing costs (this includes the $2500 earnest deposit which was applied to the escrow costs), which included the pro-rate payment of property taxes, his share of escrow fees, one month of mortgage (or at least the interest), etc. I think he ended up with a refund at the end of $1000-2000. Remember, escrow companies estimate high so they don't have to come back and ask you for money.

 

[undertheradar]

You are looking in Southern California. You must be aware that you will be competing with investor all cash offers. The SoCal real estate market is being driven by these cash investors and it is keeping many locals from being able to afford homes. With regards to your projected monthly costs, $4000 - $5000 would get you your home, insurance and taxes. Utilities are high and then there is the question of earthquake insurance. I would think that the bank would like to see reserves of $30,000 - $40,000, as a minimum.