Are you wondering how much money you’ll need to come up with in order to buy your dream home? Well, we’ve come up with the ultimate guide for you!
Trying to figure out how much money you’ll need to purchase a house has always been difficult for first-time buyers. But in 2022, it’s become even more challenging, with housing prices hitting new highs throughout the country.
Buying a home with a mortgage and finding a local mortgage lenders is often one of the most significant personal investments most individuals make. Not only does the amount you borrow depend on what a bank is willing to give you, but it also depends on several other factors. Therefore, you must assess your financial situation and your personal preferences and priorities prior to purchasing a home.
Read More: Fixed & Adjustable Mortgage Rates: Everything You Need to Know
Despite the difficulties of the current seller’s market, purchasing property can help you avoid rising rental costs and accumulated equity.
Breaking Down Cost Constraints
Based on your application replies, a lender will inform you of the maximum loan amount for which you qualify when you are pre-approved for a mortgage. Your mortgage application will inquire about your expected down payment, as well as your income, job, obligations, and assets.
A lender also pulls your credit report and score. All of these factors will play a role in a lender’s decision to loan you money for your home purchase, as well as how much money and on what terms.
Here’s an overview of the significant expenses involved in becoming a homeowner:
Consider Your Down Payment
Your down payment is the money you put down upfront when buying a house. Most people believe that they need to put down 20%; however, many loans allow you to put down less than that.
A down payment can significantly influence a mortgage, including the type of loan you qualify for, your interest rate, and the cost of the loan.
While it is possible to buy a house with a down payment of less than 20%, doing so may raise the overall cost of homeownership.
The Federal Housing Administration (FHA) offers government-backed mortgages that require only 3.5 percent down and lower credit score requirements. Yes, it might sound appealing to buy a property with a lower down payment, but in such cases, your monthly payment will be more prominent, and you will pay more in interest over the entire loan period.
Depending on your budget, you may need to buy a less expensive home to make your monthly payment more manageable.
Closing Costs
Beyond your down payment, mortgage closing costs are fees you pay when you acquire a loan for your home.
These expenses range from 3-5% of the loan amount and include title insurance, legal fees, appraisals, taxes, and more.
Here’s a brief rundown of what the closing fees cover:
The Cost of the Application
The lender may charge you a loan application fee to process your mortgage application. Before applying for a mortgage, inquire about the lender’s policies.
Fees For Appraisals and Surveys
Appraisals and surveys will be used to validate your home’s fair market worth. The cost of these services varies, but they can be fairly high.
Owner’s Title Insurance
This type of insurance protects both the buyer and the lender and is covered by policies that ensure the property may be lawfully transferred. They are determined using the purchase price.
Mortgage Insurance
If your down payment is less than 20 percent, you may need to purchase private mortgage insurance, protecting the lender against damages if you cannot repay your loan.
Points on a Mortgage
Mortgage points, also known as discount points, are given directly to the lender at closing in return for a lower mortgage interest rate.
Property Tax
At closing, six months’ worth of advance tax is usually paid.
Taxes may differ depending on where you live. Also, keep in mind that the property may be evaluated once the loan is closed.
Commissions on Real Estate Transactions
The seller usually pays this fee, not the buyer, when it comes to commissions. A broker’s commission is generally between 5% and 6% of the home’s gross purchase price, which is shared evenly between the seller and buyer’s agents.
The Cost of the Title Search
The title company charges a fee to examine public property records for potential ownership issues. The title business looks up the property’s deed records to ensure there are no unresolved ownership issues or liens.
Mortgage Payment
When calculating how much money you’ll need to buy a property, consider how much it’ll cost you each month, not only on the closing day.
One of the most predictable recurring payments is your monthly mortgage payment. Your mortgage rate significantly influences your monthly mortgage payment, so searching around for the best mortgage rate is critical.
If you put less than 20% down, your mortgage payment will almost certainly include mortgage insurance in addition to the principal and interest. Mortgage insurance protects the lender if you are unable to repay the loan.
Recommended Reading: VA Home Loan v/s Conventional Home Loan: Choosing the Best Loan Option
Plan Your Mortgage Buying Efficiently
There’s a lot more to consider than the listed price when determining how much money you’ll need to buy a property.
When making a budget, remember to account for both one-time and recurring costs. You should also review your monthly finances to ensure that holding a mortgage and paying for regular bills won’t become a financial strain in the long run.
It can become challenging to buy a home if you don’t have the support of a local mortgage lenders who provides stellar customer service and accountability.
At Lone Star Financing, one of the fastest-growing mortgage lenders in Texas, we provide our customers with upfront conventional home loans, Texas jumbo home loans, FHA home loans, Texas VA home loans, Texas USDA home loans, reverse mortgages and mortgage refinancing. So get in touch with us today to purchase the home of your dreams!
