One hurdle many homebuyers face is the amount of money needed to actually purchase the home. They can make the payment easily. Their income and credit score say they can afford the home and are a good credit risk. Unfortunately, that is not enough. Buyers need cash for downpayments, fees, and other expenses. This episode shows you what you may need and some options for where it could come from.

• 3:27 - Up Front Money
• 7:43 - Downpayment & Loan Fees
• 10:29 - Prepaids
• 13:48 - Closing Fees
• 18:35 - Options for this Money
• 24:14 - Rules of Thumb

How much money is it going to take for me to be able to buy a house? My answer is that depends. Buying a home is exciting, but the process can be overwhelming. Trying to understand all of the paperwork, financing, and what you need to do can be stressful. Without knowing what you're doing or where things stand, it's hard to move forward. Or worse, you can make a mistake that costs you thousands of dollars. That's where the get me ready to buy podcast hosted by Jeff Jones comes in. Jeff is a realtor coach and entrepreneur. He helps take the guesswork out of home buying by providing you with the details, resources, and professionals that make the process easier to understand so you can successfully buy your next home with confidence.

Now here's Jeff. Thanks for joining me for this episode of the Get Me Ready to Buy podcast. One of the big questions I get asked is how much money is it going to take for me to be able to buy a house? My answer is that depends. Well, it does depend. It depends on the price of the home. It depends on the type of loan that you're going to get. All kinds of elements go into how much it's going to cost. But today we're going to dive into what you might could expect to need in available cash or something to help you be able to get into a home.

Many times it may not be the payment that's the problem. You're paying that much in rent. Your debt to income ratio already would approve you for the amount of home that you want to purchase. The problem is you don't have the money that you need up front to be able to get into the home. That delays your ability to purchase might even cause you not to be able to purchase, at least not in the near future. So let's take a little bit of a deep dive into what you might could you need to be able to get into a home. And I'll also tell you at the end of it kind of some rules of thumb that I go by in helping my clients purchase homes. Let's say that you want to purchase a home and the sales price is $300,000.

Now, I got there because in one of the counties I'm in, our median price, meaning half the homes that sell sell for more or less than $320,000. Another county I'm in, that number is 279, almost $280,000. The average of those is $300,000. There is possible to get into some homes for less than $300,000. Most of the new construction homes are right at that $300,000 mark. I had to pick a number. $300,000 is kind of easy to deal with. You may be purchasing a house that's valued lower or house that's valued more.

Meaning one of the ways that you're getting out of the contract, but it's not specified that you actually can get out of the contract. In the contract, if the house doesn't appraise and you can't reach a price, you get out of it. If you're not able to get the loan and you made purchasing the property conditional upon you getting a loan, you can get out of the deal and get your earnest money back. If you just decide you don't want it and you walk away from it, your earnest money is at risk for you not to get it back. And it's going to go to the seller for allowing their home to be tied up under contract with you and you didn't do anything with it anyway. Hopefully most of the time you're going to see that money back. So you'll have your earnest money that you're going to need to have some money available up front. You're also going to need to pay for a home inspection.

And once you pay the home inspector to inspect the property, you've just paid for it. Just as if you went and paid for a meal or paid for a movie. You've paid for it. They've rendered services to you. You've got a report, it's yours. End of story. That's just money you're going to be spending up front. The next two amounts, this is an appraisal and the next amount may be asked for you up front or the lender may hold and ask for it at the end.

But I'm saying that you're going to need money to pay for this upfront for the appraisal. Most lenders I know, if they go ahead and pay for the appraisal and for some reason you back out of the property, they're going to want this money. Which is why I say have it up front. You already have it available. You know you're going to spend it. If you're getting a loan, you need to get an appraisal or you choose to get an appraisal and you're paying cash for the property. But if you're getting an appraisal, it could be 550, it could be 400, it could be 750. It's going to be a range in there typical in our market.

One of the last ones I saw come across my desk was about 550. So I picked that number for 550. And another fee is going to be a credit report. Some lenders will charge you for running the credit report from them or they'll charge it to you at the end. Some will just eat that price. But worst case is you're going to need to pay for it. And let's say it costs $35. So you're going to need up front.

Really, before you even start looking at property, you need to know that you're going to need about $2,000. That's going to be able to get a property under contract for you. The earnest money that you put down on the property, you're able to get the inspection and your lender is moving forward with the appraisal and your credit report. $2,000 is the starting point. But you're going to need a little bit more than just the $2,000. You're going to need some money for loan fees. Now if you're paying cash for a house, you can eliminate maybe all of this, but you're going to need some money or at least to know how to pay for it in your loan fees. And here's what those are.

You have a sales price of $300,000. If you're getting an FHA loan, you're going to need to put down three and a half percent. That's $10,500 a conventional loan is 3%, that's going to be $9,000. But if you're getting an FHA loan, $10,500 is how much money you're going to need for down payment. And you only need all of this money at the very end when you're signing the documents before you get keys, they're going to say, okay, where's the money that you're using for down payment and your closing costs? We're going to break all those down. So you're going to have a down payment of $10,500. And then all the rest of these begin to be fees that come in from different sources. One of those fees, well, I forgot this.

So you have a loan origination fee, and this is where they typically make their money on providing the loan for you. There could be an underwriting fee. I saw this recently on a closing settlement statement underwriting fee of almost $300. It was 299 something. So I just said $300. That's going to be the work that the lender is doing to make sure that you are a good risk that you're going to be paying back your loan. This is the fees involved in their underwriting process. There's going to be some doc fees that you have for them that's related to the loan itself.

I'll show you another fee that comes up related to the document a little bit later on. But these are your lender fees. So between your lender fees and your down payment, that's $12,397.50. Again, that's on this $300,000 house. And this is typical in my market. It may be different in your market, so don't hold me to what all these fees are if you're not in. Well, don't hold it to me in any market that you're in. This is just the closers and lenders that I deal with in my market.

These are typical expenses and fees that you as a buyer would have to pay. Now we're going to have prepaids. We typically roll all these into closing costs. We're going to say down payment and closing costs. Closing costs include those loan fees that I showed you and these prepaids. And these prepaids meaning it's something you're going to have to pay for eventually, but you're paying for it up front. And here's what you're going to be paying for up front. You're going to have interest depending on how many days you have between now and when their first mortgage payment is due, the bank is loaning you or whoever the lender is, is loaning you their money from the day you close.

But you're not going to pay them anything until 30 to 45 days out is typically going to be your first payment. Well, they're not going to let you borrow that money for 45 days or 35 days for free. You're going to be paying interest on that loan. That deal that I just did, I think it was probably needs to be a little bit higher. They're looking at $250 for the interest for the few days that it was going to be. It could be closer to 700, $800 or more. That's where you need to get that fee from your lender. Another fee is going to be taxes.

If taxes on this property are $1,800 a year, that could be a combination of city and county taxes or parish or wherever you live. If those taxes are $1,800 a year, that's $150 a month. Typically they're going to collect three months or so many months worth of taxes up front and put it in your escrow account. The lender is going to be doing this. Your monthly payment is going to include your mortgage and interest, plus your taxes and your homeowners insurance. So they want to have a few months of taxes already built up. When that tax bill comes, they're able to pay that bill. You might even need to pay for.

Let's say that if we are closing, like I said, October 31, then you're going to have taxes from November and December, which would mean 300. So they might collect 750 from you to have the 300 you owe for the remainder of this year and then a three month jump start in the escrow account. These numbers could be a little bit low. I've taken care of that a little bit later on as we work through this. I mentioned homeowners insurance. If your homeowners insurance premium is $1,500 a year, they're going to collect that $1,500 up front. And what I didn't put in here is an extra two or three months. That could be another $125 a month for three months.

These are the actual cost for closing. You're going to have a closing attorney's fees involved. I've seen these anywhere from four hundred and fifty dollars to one thousand dollars. Three hundred and fifty dollars to one thousand dollars. I put 750, maybe a little high, maybe a little low, but 750 is typical in our market. 450 to 750 is typical in our market. Title insurance. This is something that you're going to want that your lender is going to have you buy on their behalf to protect the title to the property.

If anybody from the past comes and makes a claim on the property, this insurance protects you. You're going to need to pay for this. This is based on the value of the property. I made a guess based on what I've seen other title insurance be that it would be about $800. However, it could be different in your market and different on your property. You're also going to need to see a recording fee back to the county. It's different from those doc fees that the lender is going to have. This is a recording fee for your local government to record it in their tax record.

Our market in one of my counties is 75. In another one of my counties in my state, a different state, there is an extra tax on top of all of this that you pay. So again these numbers could go up depending on where you are and how much your property is. So I took into account some other fees. So let's just say I was off by $1,000 on the prepaids. So there could be a few other little tactic fees tacked on throughout all of this. Not to the lender, I mean, not to the real estate agents involved or the brokerages, but just some few fees just to see in case I messed up on this. So closing costs could be another $3,625.

That's just to get the keys to the property. Hey, thank you for hanging with the Get Me Ready to Buy podcast. So far. You need to know how ready you are to buy a home. So get your score@readytobuyscore.com. You'll pick a few statements, get an email telling you what your score is and what you need to focus on to get ready to buy a home. If I can help you in my market, which is the Mid South, the Memphis metro area, please let me know if you're in another market. I've got agents all over the country and in a few countries around the world reach out to me and I'll connect you with one of our agents who can help you get your home bought wherever you are.

Now back to the show. I have buyers all the time explain to me that they can afford the payment. They just can't get all the money they need to close on the property. Unfortunately, this is just the case. This is just what it's going to take. You're going to have to have some money for down payment. You're going to have to have money for closing costs, for prepaids. It is what it is.

Now there may be some ways to reduce this amount of money that you're going to have to pay to actually get possession of the property. Let's take a look at what are some possible solutions for reducing or taking care of where this money is going to come from. Here are some options for how you might pay for those funds. The first one is a loan type. There are loan types out there that's possible to get 100% financing, meaning that 10,005 that was required right off the top for down payment of the property. You wouldn't have to pay if you bought in a rural area and utilized a USDA rural loan. They're going to cover 100% of the value of the property that you don't have to put any money down for it. If you're a veteran and you have access to VA benefits, there's the potential for you to leverage 100% of your VA benefits to purchase the property and you don't have to put any down payment.

So $10,500 right off the top that you don't have to put down? Yes. That is fantastic. There are some other options that you have available to you, and that's going to be actual fees from let me get this actual down payment assistance, either from the government or from the lender. If you're a first time home buyer, if you are a first responder, an educator, buy in a particular census zone, there may be some options for down payment assistance that could be 70 00 10,000. That's either a gift to you or it's paid back over time. Some of them, one of them out there is there's $7,000 available if you qualify for it. It's written as a second mortgage on the property. As long as you own the property for ten years and you don't refinance, I believe you don't refinance, I know you have to own it for ten years.

You don't pay it back. They just write it off at no interest. If you go to sell it in four years you're going to owe that money back so that it goes back into the pool to help out. But there are all kinds of programs and as a realtor I know what those programs are but that's not my specialty, that's where that lender comes in. My partner lenders know exactly what programs they have, what work for them. I know what loan programs that they have to know what might best fit you. But just because I or your agent send you to a particular lender, you can use any lender you want for you to get the best deal for you to be able to get into your home. So take advantage of any down payment assistance if you qualify for it.

If you're looking at new construction and you may want to look at new construction because you have that help from the builder they typically want you to use a particular lender and a particular closer. You can use whatever real estate agent that you want. Just know going in to take advantage of all that the builder has. You might need to change some of your plans to match up with using sources that the builder wants you to use. You might have access to a retirement account, an investment account to tap into a 401 or borrow against some retirement money. I'm not necessarily recommending you do it, I know it's an option. My retirement accounts gave me the option to be able to borrow for interest free for down payment for a property. You might be able to have access to something like that.

There's also the potential for you to get a second job. I was with some folks listening to a trainer last week and she was talking about when she paid for her first house, she had a second job that let her just put money aside so that she would have the money that she needed to purchase that property. You might consider a second job, a side hustle to get some money and you might have an asset you can sell. Maybe you have a piece of property somewhere else, you have a vehicle that you don't use or some other asset. But there are all kinds of ways for you to get the funds that you need to be able to close on a property so that you're able to own your own home. And typically these assistances are available for owner occupant, not if you are using as an investment property, especially the loan type. Down payment assistance or help from a seller builder retirement account might could use that for some investment property. The same thing with a second job or getting or selling a liquidating an asset.

Those can help you with that. These are just some of the options that might help you be able to get the funds that you need for your down payment and your closing costs. I mentioned earlier about a rule of thumb or some rules of thumb that I go by in helping my clients, my buyer clients, prepare themselves for what they need for closing costs and prepaids and down payment. And the rule of thumb is your down payment if it's FHA, is three and a half percent conventional is going to be 3%. If it is some other bank loan, whatever. You might need a little more than that. But typically you're going to need either 3% to three and a half percent as a minimum in down payment. So let's just say you would figure on 3% of the purchase price being your down payment amount and then that would be if it's $300,000 house ten five.

Then you're also going to need closing cost and prepaids. That's going to be anywhere from 3% to 5%. And you might think, wow, that's a big range. Well again, it depends on where you are in the country. Homeowners insurance rates are higher in some parts of the country than they are in others. Tax rates are higher in some than in others. Interest rates as they fluctuate. I mentioned you're going to prepay so many days of interest that you've borrowed the money before your first payment.

If you're looking at a $400,000 home multiply, if you know you're doing an FH or a conventional loan multiply 3%, it's $12,000. If you're looking at closing costs and prepaids, 3% again would be $12,000. If it's 4%, that's 16. Plus the twelve, that's $28,000. Just kind of a rule of thumb to go by is this three to three and a half percent down payment, three to 5% closing cost prepaids. So if you took the average of those, you're looking at somewhere around 7% between three and a half and then three and a half percent for each of those 7%. Just kind of gives you an idea. And I would rather you maybe go a little bit high and then be surprised that you have some money left over because you're probably going to want to do some things to your house, change out maybe some light fixtures.

If it's not new construction, you didn't get to pick those things. There's going to be some things you're going to want to do. Maybe you want help moving and you put you some of that money that you didn't have ahead of time. But at least it gives you a target to shoot for. To know how much you're going to need when it comes to closing on your property to get the property that you want, that you can own so you can live where you want to live. Building equity and building. Wealth for you and maybe your family, but just helps you out to know what's available out there for you to be able to secure those funds that you're going to need for that down payment, to be able to get into that home. It's great to have a conversation with an agent in your market for a lender in your market, if you think it's going to be even two or three years from now, I would have a conversation with a lender.

They were able to get into that home for just the cost of their home inspection. They got it all back. And that's great if you can work that kind of a deal. Only the agents in your area, the lenders in your area, know what works in your area. If you're in the Mid South area, in Mississippi or Tennessee, I'll be glad to help you out, put you in touch with a lender, help you navigate some of this process. If you're not in my market and you don't know a reputable agent in your area, I've got agents in markets all over the countries that I'm partnering with. I can help you secure one of those agents in your area and a local lender that can help you navigate your purchase of your next home. Have a blessed day.

Hey, thanks for hanging out with me today on the Get Me Ready to Buy podcast. Hopefully you found all this information helpful to you and it's made a little more sense out of what it takes to actually buy a home and you feel a little bit more confident about your home buying process. Now, again, as I shared earlier, if I can help you buy a home in the Mid South or find you an agent wherever you are, just reach out to me at MidSouth Homes or whatever link is here on this podcast or down below in the YouTube channel. If you're listening this on a podcast I just mentioned the YouTube channel. There is a Get Me Ready to Buy YouTube channel where you can actually watch the podcast. If you'd rather do that. If you're watching this on YouTube and you'd rather listen to it, you can find the link to getmereadytobuy.com and you'll find where you can listen to all the podcasts. Wherever you get podcasts, I hope that you'll also rate and review the show.

There's a link here in the notes in the show notes or here where you can review the show and rate it so that others who are looking to buy a home just like you can find it, especially if you found it helpful. And I would love a five star review if this has been helpful to you. The other thing you can do is remember to get your score@readytobuyscore.com and as always, hit the subscribe button so that you are the first to find out the latest information about what it takes for you to be ready to buy a home. Have a blessed day.