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Featured Properties
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Cash Requirements and How To Find Enough |
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LESSON
3: Cash Requirements and How To Find Enough
Getting enough cash together for a home purchase has been a major stumbling
block for many would-be homebuyers. But it's less a problem today
than it used to be, thanks to new loan programs and changes in the law.
You certainly will need some cash to make a down payment and cover settlement
costs -- how much will depend on the loan/lender you choose and the terms
of your contract with the seller. You'll also need to budget cash
for moving expenses, new appliances and furniture, decorating costs, perhaps
even immediate repairs or remodeling.
Down Payment
Although a 20% down payment is still considered “standardâ€
in the lending industry, homebuyers frequently purchase with much less.
Most lenders will accept lower down payments, say 10%, if buyers purchase
private mortgage insurance (PMI) to shield the lender from the higher
risk associated with the loan. Often, an initial premium is paid at the
settlement table, with additional premiums paid monthly. Other payment
arrangements are available, however. (If you buy PMI, you can have it
canceled when your equity in the home reaches 20% or more, either through
payment on principal or market appreciation.)
The Federal Housing Administration (FHA) offers loans to qualified buyers
with as little as 3% down. Veterans can take advantage of no-down-payment
loans from the Department of Veterans Affairs (VA). And zero-down
loans are now being offered by conventional lenders for homebuyers with
excellent credit, though the interest rate on these loans may be somewhat
higher.
Whether you decide to make a large or small down payment will depend on
the amount of cash you have available and your financial goals. Some buyers
prefer to make larger down payments to minimize their monthly payments
and interest expense. Other buyers make small down payments because they
lack cash or they want to "leverage" their investment (watching
their homes appreciate on OPM, other people's money). The low-down-payment
strategy also yields a higher mortgage-interest tax deduction.
Settlement Costs
Settlement costs (also called closing costs) cover a variety of expenses
including:
Loan or discount points
Loan origination or service fee
Loan application fee
Credits report
Appraisal
Home inspection
Title insurance (lender's and buyer's)
Attorney or settlement agent
Recording fees and transfer taxes
Prepaid interest
Prepayments for taxes and insurance
You may also pay other costs, not listed above, depending on the particular
transaction. Some of these costs are typically thought of as sellers'
costs, while others are often paid by buyers, with different traditions
about who pays which in different areas of the country. Regardless of
local tradition, however, you may be able to negotiate to have the seller
pay some or all of your settlement costs. You may also be able to reduce
your cash outlay by rolling your settlement costs into your mortgage loan.
Of the settlement costs listed, loan or discount points (paid to reduce
your interest rate on the loan) may be the largest expense. If, for example,
you pay 2 points (a point equals 1% of the loan amount) to reduce your
interest rate by 1/4% on a $100,000 loan, you'll pay $2,000 for
points at closing. If you pay all of the other closing costs in cash as
well, you could need an additional $3,000 or more.
Your lender will give you a Good Faith Estimate of closing costs within
three days of your loan application. It is, however, an estimate -- the
actual numbers will differ somewhat by the time you get to settlement.
Collecting Cash
If you negotiate to minimize your cash requirements but you still don't
have enough to purchase a home, there are a number of creative options
available. Of course, a disciplined savings plan is the first strategy
you should consider. Here are a few other ways you can assemble the cash
you'll need:
~ First-time buyers (defined as those who haven't purchased
a home in the past two years) are allowed to borrow up to $10,000 from
their individual retirement account (IRA), penalty free, if the money
is used to purchase a home. The $10,000 can also come from parents'
or grandparents' IRA accounts.
~ Borrow from a company pension plan or against a life insurance
policy.
~ Get an advance on a future inheritance.
~ Ask parents or other benevolent individuals for a tax-free gift,
accompanied by a "gift letter" indicating you will not be
required to repay the gift.
~ Partner with others (friends, relatives, investors), to exchange
their cash for equity in your home (which you can buy out later, if you
wish).
ANY QUESTIONS? We'd be happy to answer your specific questions about
your particular situation.
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About The Action Group
JOE THYNE I joined the military on April 27, 1988 on my 17th birthday (with a waiver signed by my parents). In my military career, I progressed through the ranks first as an E-1 (Private) up to an E-5 (Sergeant).
Read More
Fort Hood Relocation
You've suddenly been reassigned to Fort Hood and now you need answers! Relocating to a new area can be a harried and stressful time. We're here to help you! Read More
Pre-Qualify for a Mortgage
Ready to buy a home? Let us help you find the best lender to assist you in qualifying for a mortgage loan. Read More
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Fort Hood
Real Estate - Harker
Heights Real Estate - Killeen
Real Estate - Copperas
Cove Real Estate - Kempner
Real Estate - Nolanville
Real Estate - Belton
Real Estate - Temple
Real Estate - Holland
Real Estate - Fort Hood
Homes for sale - Harker
Heights Homes for sale - Killeen
Real Homes for sale - Copperas
Cove Homes for sale - Kempner
Homes for sale - Nolanville
Homes for sale - Belton
Homes for sale - Temple
Homes for sale - Holland
Homes for sale
Information on this site deemed suitable but not guaranteed for
Fort Hood, Harker Heights, Killeen, Copperas Cove, ft. hood, Kempner,
Nolanville, Belton, Temple, Holland, Lampasas Real Estate
& homes. MLS multiple listing Service data here is provided by
outside real estate firms. This covers MLS residential or commercial
homes in cities for real estate, such as in Fort Hood, Harker Heights,
Killeen, Copperas Cove, ft. hood, Kempner, Nolanville, Belton,
Temple, Holland, Lampasas MLS Data here Is useful to
buy or sell MLS 1031 homes or other real estate homes, Condos,
town homes in Fort Hood, Harker Heights, Killeen, Copperas Cove, ft. hood,
Kempner, Nolanville, Belton, Temple, Holland, Lampasas
Texas. MLS Transactions are from Texas Realtors, agents,
buyers, seller or sellers or real estate agents of Fort Hood,
Harker Heights, Killeen, Copperas Cove, ft. hood, Kempner, Nolanville,
Belton, Temple, Holland, Lampasas MLS homes of a
Realtor® or other buyer or seller. Home data here helps people
in IRC, 1031, property, property exchange dealing in MLS real
estate and homes and real estate properties in Fort Hood,
Harker Heights, Killeen, Copperas Cove, ft. hood, Kempner, Nolanville,
Belton, Temple, Holland, Lampasas. Sale can be
by Exchangors, exchangers, brokers In MLS real estate for
IRC/1031 property exchange or selling a home or condo or town
home real estate or condo real estate item. Data helps find
MLS homes, condo or real estate town homes, MLS, or residential
real estate other properties in Fort Hood, Harker Heights, Killeen,
Copperas Cove, ft. hood, Kempner, Nolanville, Belton, Temple,
Holland, Lampasas. Joe Thyne serves these cities as a
Realtor® and Broker Associate. He serves real estate clients
looking for homes and condos and town homes and lots and
property in Fort Hood, Harker Heights, Killeen, Copperas Cove, ft. hood,
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