Home Buying 101

[My2BabiesLexis&Dill]

We are looking at buying our first house next year. This year we are paying debts off and building up our savings/down payment. Besides the down payment, how much money would we need? Closing cost? Home inspection? Earnest money? I'm not sure what else is out there that needs to be included. I don't want to find the perfect place and then not have enough money for everything.

Thanks for any input!

 

[manning]

At least 20% down payment.

 

[Where'sPiglet?]

We had to have 15 months of home insurance up front, both for flood and house. A year of both is about $2700 here, so this was over $3000 up front. We also had to pay over a year's worth of property taxes at closing. ($1000+)

These were in addition to the down payment. We also had the inspection ($350) and appraisal ($400) and some other fees that I can't remember.

I don't know "earnest money" but we put $1000 at the time of the offer acceptance but that $1000 was considered part of the payment for closing costs, so it wasn't in addition to the costs....just paid earlier.

The more money you have, the better, especially for down payment, but as a first time home buyer you may qualify for an FHA loan. This will allow you to put 3.5% down.

 

[SookieStackhouse]

I think you can start with as little as 10% down... also seems like closing costs are shockingly high. It's like you know it is going to be quite a bit, yet you are still surprised when you see the actual total.

It's been a few years since we bought our house, so I do not remember all the details, but I do remember we went with the 20 percent down.

 

[My2BabiesLexis&Dill]

I don't know "earnest money" but we put $1000 at the time of the offer acceptance but that $1000 was considered part of the payment for closing costs, so it wasn't in addition to the costs....just paid earlier.

I love to watch those shows on HGTV and I thought I heard the realtors call it that but maybe not. LOL. Thanks for your reply. I knew about the inspection, appraisal, but never heard of having insurance and taxes paid up. I think I may need to get a part time job to get all of this saved up for this year. LOL

 

[MissBritt]

When we bought ours a little over 2 years ago, we had to pay $2500 at the beginning (which you lose if you back out!), the downpayment (which for us was less than 20% but we had flawless credit) and a few thousand in closing, which included taxes, fees, appraisal, and 3-4 months insurance and taxes. Then our first mortgage payment was $0 since it was basically part of the closing, so we did "skip a month" before getting our regular bill.

 

[TexasTom]

Smart move. Check your credit reports and see what is your FICO score. Pay off your debts, increase savings and improve your score.

Most lenders will charge you a 1% loan origination fee. They should also provide you a good faith estimate that shows much money you will need for closing.

Prepare to submit your bank statements, the past two year tax filings, paycheck stubs, etc.

With 20% down payment, you can avoid the mortgage insurance.

The home appraisal should be near your purchase price.

Hopefully you will find a nice home for your family. Good Luck.

 

[minushka72]

Check to see if you workplace offers a group legal plan that includes the lawyers fees for home purchase. Mine does. I pay approximately $7.00 bi-weekly for the Hyatt Legal Plan and basically I have a lawyer on retainer. It covers home sales/purchases and wills among other things. Not sure how much of closing costs goes into the lawyers fees as we are still working on paying off debt before we look for our first home but I know our plan covers the lawyers fees in home sales/purchases.

 

[IUTBAM]

I love to watch those shows on HGTV and I thought I heard the realtors call it that but maybe not. LOL. Thanks for your reply. I knew about the inspection, appraisal, but never heard of having insurance and taxes paid up. I think I may need to get a part time job to get all of this saved up for this year. LOL

We have bought 6 houses, and sold 5, plus I worked in RE appraising, so I'm not a "novice", but when we bought our first home, I bought this book:

http://www.amazon.com/Questions-Every-First-Time-Buyer-Should/dp/1400081971

I would HIGHLY recommend it for a first time home buyer. Even with my RE background there were things in that book I hadn't thought about. A good realtor will tell you these things, but it helps to know what questions to ask. I would also recommend you start looking for a realtor now...most are happy to provide information, and a lot of them have their own websites with all sorts of information as well.

Yes, you will need to have one year's worth of homeowner's insurance (HOI) up front paid at closing, and then every year after that, your mortgage company will pay the bill for you (that's what you have an escrow account for...so the mortgage company can pay your property taxes and HOI). A year's worth of taxes will also be paid at closing, but it will be prorated between what the seller owes for that year, and what the buyer owes for the rest of the year once he "owns" the house. Also don't forget about homeowner association fees if you live in an HOA neighborhood. Those can add a lot to your payment (our current HOA is $83 a month).

If there is any way you can swing it, 20% down is preferable, as every lender I've ever heard of requires 20% to avoid PMI. There are ways around it ("ghost PMI", and certain programs for VA loans that can be done without PMI). However, banks have become SO much stricter because of the collapse of the housing market across the board in the US, that the bigger the downpayment (and the better your credit), the more likelihood you'll be approved AND get a better interest rate in the process.

Yes, you will have an appraisal done when you applly for the mortgage...the mortgage company will order it. This is when it pays to know what comparable sales in the neighborhood you want to buy in comes very handy (in addition to using that knowledge to formulate your offer). If the appraisal comes in below the selling price, the seller will either have to lower their price, or you will have to make up the difference if you want the home (it's typically a standard part of a RE contract that you can back out if the home does not appraise out and get your earnest money back, so no worries there). You will also have an out if the home inspection uncovers major issues, so don't worry about that either. Just make sure you find a GOOD inspector.

And and if you qualify for membership in USAA, I highly recommend using them for your mortgage...low fees, great interest rates, and incredible customer service.

Good luck...buying your first home is a very exciting thing, but also extremely SCARY! lol Any other questions, feel free to ask. I could talk about home-buying all day long, lol.

 

[jsmith]

How much down payment you need depends upon the loan program you are using, your credit score and the price of the home-20% is a standard figure for 'conventional" mortgages-which do not require private mortgage insurance if your loan to value ratio is at least 80 percent (thats where the 20% down figure comes from) Other loan programs-VA, FHA,state backed first time home buyer programs all still exist, require smaller down payments, often have lower interest rates and while some require PMI not all do. Do very though research on loan programs before you choose one-i know some programs got bad names as a a result of the the mortgage crisis but there are still very good ones out there.
Do good research to make sure purchasing a home is the right choice. Buying a house is no longer always the best option-values are not going to increase as they have in the past and may still continue to slide. If you are not planning to live in a home more than five years you risk loosing more than you gain in a home purchase.
the "earnest money" ( so called because you put it up to show you are in 'earnest' about the purchase) pays a portion of your settlement costs-i.e on your good faith estimate you will see that dollar amoumt subtracted from what you owe at closing. the $ amount varies from 500 to 5000 dollars depending on your location, the market and the sellers expecations. you will also pay a year of estimated taxes and homeowners insurance up front, an apprasial fee, a home inspection fee, a filing fee, loan orgination fees or funding fees on SOME not all loan programs, title insurance and some other fees-closing costs-seperate from the down payment usually run about 2 to 3 percent of the purchase price of the home.
I hope thats helpful.

 

[hopemax]

We had about $8,000 in addition to our down payment (I was hoping for $10K, but we didn't quite get there). We went with a less than 20% and pay the PMI, in order to have cash on hand for the things we needed to be able to actually live in the house. Fridge, W/D, ladder, tools, paint supplies, some new furniture (mattress, kitchen table). We had the seller pay closing costs. So they paid for the "up front" costs. Although, we had to pay the appraisal fee, since that needed to be paid before closing. Besides the normal inspection, we had the sewer line inspected, and a radon test. The radon test came back too high, so we had the seller install a mitigation system.

 

[My2BabiesLexis&Dill]

Wow! Thanks for the replies. Its allot to take in when looking at buying a home.

 

[Where'sPiglet?]

I love to watch those shows on HGTV and I thought I heard the realtors call it that but maybe not. LOL. Thanks for your reply. I knew about the inspection, appraisal, but never heard of having insurance and taxes paid up. I think I may need to get a part time job to get all of this saved up for this year. LOL

It might be called that. We don't have cable, so it's been awhile since I've watched HGTV!

It sounds like it will depend on your jurisdiction how much property tax you will pay up front. Also, based on some other threads, I know our property taxes are much higher than many other places.

You might not need as much for taxes and insurance as we did. We were going to have the sellers pay partial closing costs, but the appraisal came back lower than they expected, so we ended up paying all the closing costs but got a better price overall on the house. They did let us keep the fridge and the washer and dryer, so that helped out a LOT.

Good luck!

 

[emmababy]

I have been a loan officer for 8 years. I do loans in all 50 states, so feel free to pm me.

You can do an FHA loan fo 3.5% down. Your earnest money acts as a deposit when you make an offer. It is usually contingent upon financing and inspections, it will be credited toward your total amount at closing.

You can build in seller paid closing costs to your offer and not have to pay those out of your pocket.

In addition to your down payment, expect to pay for an appraisal and inspection.

If you have any more questions, please pm me and I will be glad to help.