How Much Should You Really Save for a Down Payment on a Home?
Updated: Apr 24, 2018
SO….you’ve tightened your belt these past few years and with unparalleled self-control, turned down the guacamole at La Piñata to avoid the extra charge. You’ve finally met your savings goal of $30,000 and figure it’s time to reach out to Pete and Katy to figure out what you need to do to get your hands on some San Diego Real Estate.
The number one question Katy and I get asked when approached by first time home buyers is “How much money should I have saved to put as a down payment on a home?”
The answer that you’ve probably heard time and time again is that “it depends.” As vague as that answer is, it is the typical answer because there is more information we need from you, the buyer! Let’s take a quick look at all the cash involved in purchasing a home so you can have a better understanding of the expenses that go into a home purchase.
The down payment is what you probably consider the obvious cash outlay. Don’t focus solely on what percentage you need to put down to purchase a home. You may not be considering other costs required for purchase. Whether you have 0% (if you are approved for a VA loan), 3.5% for an FHA loan or 20% for a conventional loan, YOU have to be comfortable with your monthly mortgage payment. Don’t be afraid to go slightly outside of your comfort zone. Chances are your income will continue to increase and with a fixed rate, your mortgage will always remain the same (unlike the rent you’re currently paying)
PRIVATE MORTGAGE INSURANCE
Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay you have less than 20% for a down payment. PMI protects the lender—not you—if you stop making payments on your loan. GOOD NEWS- this PMI payment is subject to removal! To remove PMI, you must have at least 20% equity in the home. This can happen if your home appreciates quickly or if you make payments on your loan equaling 20%. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home's original appraised value.
Closing costs are where first time home buyers become perplexed, but bear with me. These costs vary and consist of fees such as loan charges, impounds, title and escrow charges, government recording and transfer charges, and other miscellaneous charges that may apply. You can expect these costs to range from 1% to 3% of the purchase price. So, on a $300,000 home, don’t be surprised when you the fees add up to $6,000!
As a buyer, you ARE NOT paying any fees to your Realtor. A buyer’s agent is commonly paid a percentage of the listing fee taken on by the seller
Understanding that there’s more involved in a home purchase than just the down payment is important. Understanding exactly what that means for you will require a conversation with a lender. Give us a call at (619) 993-0469 and we can get to talking about the right steps for you specifically.