The quick and short version answer to this question is, the more the better.
When thinking of starting to save up money to buy a home, its going to depend on basically three things:
- Loan type
- Closing cost
Price point you have been qualified for by a lender or your estimated purchase price, will dictate the amount of your down payment and will also let you know what your loan amount and monthly mortgage payment is going to be.
The reason to know what your purchase price is in combination with the #2 Loan Type is to estimate the amount you need for down payment.
For this example we are going to use $200,000 as a sales price to make this exercise simple.
2. Loan Type
Now that we know the purchase price, we need to know what type of loan you are going to utilize for the purchase.
The most common loan types are:
FHA loans are commonly used to help first time home buyers with higher debt to income ratios and loaning the borrower up to 96.5% of the purchase price, which in turn means that, you, the borrower will only need a minimum of 3.5%, which in this example is $7,000 based on the $200,000.
Most conventional or traditional loans require a higher credit fico score, lower debit to income ratio and usually 20% downpayment but in some circumstances 5%-10% downpayment if the borrower meets more strict standards.
3. Closing Cost
Closing cost are in direct relationship with the lender you choose to work with and the amount of the loan, but in general the clsoing costs run between 3.5% – 4.5% of the loan amount not the total purchase price.
Example: $200,000 – $7,000 (3.5%) = $193,000 Loan amount x 4% (average closing cost = $7,720
So, in conclusion, for this set example the total amount needed between downpayment and closing costs is $14,720.
Note: There are additional costs like home inspection, appraisal fee and/or loan application fees.
For a more detailed explanation of all the preparations before buying a home, feel free to contact one of our agents at 365 Realty, Inc. for a free consultation. 407-944-1365 or email us at firstname.lastname@example.org