Understanding how much money you need to buy a house can give you an idea of how much you should expect to save.
You’re probably excited about the thought of buying your first home? If so, you have every right to be.
But how much money do you need to buy a house? A calculator can help you determine that. But the average cost of buying a $300,000 is typically around $17,000.
In this article, we’ll go over the main costs of buying a house including the down payment, inspection cost, appraisal cost, closing cost, etc.
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How much money do you need to buy a house?
Out of Pocket Cost of buying a house
The five main out of pocket costs of buying a house are 1) the down payment; 2) inspection cost; 3) the appraisal cost; 4) earnest money and 5) closing costs. These out of pocket costs or upfront costs are money yo need to pay before you become the owner of the property.
In addition, some lenders also require you have some cash reserves to cover 2 to 3 months of the mortgage repayments.
Determining how much cash needed to buy a house depends on the type of loan you’re using.
Let’s suppose you’re buying a $300,000 house with an FHA loan.
An FHA loan requires a 3.5% of the home purchase price as a down payment as long as you have a 580 credit score. So, for the down payment alone, you will need $10,500.
Here’s a quick breakdown for how much cash needed to buy a $300,000 house:
- Down payment: $10,500
- Inspection cost: $300
- Appraisal cost: $300
- Closing cost: $6000
So, $ 17,100 is how much money you need to buy a house.
Whether you’re buying a house with a 20% down payment or 3.5% down payment, you can certainly find a loan with both the price and features to suit your needs as a first time home buyer. You can compare First Time Home Buyer home loans on the LendingTree website.
The down payment
The biggest cost of buying a house is obviously your down payment. But that depends on the type of loan you are looking for.
For example, a conventional loan requires a 20% down payment. You can pay less than that, but you will have to pay for a private mortgage insurance – which covers the lender in case you default on your loan.
A 20% down payment however can also mean that you’ll get a better interest rate, which also means you’ll save money on interest.
For an FHA loan, you only need 3.5% down payment as long as your credit score is 580.
FHA loans are very popular these days. Not only it’s easier to get qualified (low down payment and low credit score), but also your down payment can come from a friend, a relative or your employer.
Using our example above, you only need $10,500 for a down payment for a $300,000 house.
If you’re using a VA loan then you pay $0 down payment.
Check to see if you’re eligible for an FHA loan or VA loan
How much money do you need to buy a house also depends on other factors, such as whether you are a first time home buyer or not. Your state may have a range of programs that may contribute toward your down payment.
So visit your local government office to find out if you are eligible for any down payment assistance for first time home buyers.
Another upfront cost of buying a home is the inspection cost.
It is highly recommended to perform inspection for your home for any defects so there are no surprises later on.
Inspections typically cost between $300 to $500, but it depends on the property and your local rates.
Compare home loans for first time home buyers with LendingTree
Before a lender can give you a loan to finance a house, they will want to know how much the house is worth. So appraisal means an estimate of the home’s value. A home’s appraisal usually costs between $300 to $500. A home appraisal will also determine what your property tax will likely be.
If you’re pay the home appraisal, it will be deducted from the closing cost. (see below).
Earnest money is a deposit you will have to pay upfront as soon as an offer is accepted, while you working on other aspects such as getting the home inspected, etc…
This deposit is part of the down payment, and it is usually between 1% to 3% of the final sale price. It is held by an escrow firm or attorney until the closing process is completed.
So if the sale is successful, that money is applied to your down payment. If it’s not, you get 100% of your money back.
The closing costs are fees by the lenders. They typically cost 2% to 5% of the final price. The costs include fees for homeowner’s insurance, title insurance, title insurance, property tax, HOA dues, private mortgage insurance.
It’s possible to lower these costs by comparing mortgage options.
Other costs of buying a home:
In addition to upfront costs, there are other recurring costs associated with buying a home. They include moving fees, repair costs, furniture, remodeling, etc. So consider these costs when making your budget to buy a house.
So how much money do you need to buy a house? The answer is it depends on the type of loans you’ re using. But if you’re buying a $300,000 house with an FHA loan, which requires a 3.5% down payment, $ 17,100 is how much money you need.
For more information about upfront costs of buying a house, check out this guide.
Read more cost of buying a house:
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