Series - The Home Buying Process Part 4

In the last post, we briefly touched on Down Payment and Closings Costs.

I find these two are the most confusing aspects of the finances so I wanted to give them extra attention here...

1. Down Payment

There are several loan types:

FHA = 3.5% Down Payment

Conventional can be 5%, 10%, 20% or more!

Let's take a 5% Conventional loan as an example ... If you are buying a $200,000 house, your down payment will be $10,000. Simple enough.

2. Closing Costs

These are the other costs associated with purchasing outside of the down payment. Some examples include:

1. Prorated Taxes/Utilities - Depending on when you actually close, you'll pay back the seller for any taxes or utilities that they have already paid into the home.

2. Title Insurance - Every home purchased with a mortgage will require title insurance. They handle the majority of the logistics for compiling the legal documents required to close and provide you with a Title Insurance Policy to protect your ownership in the property for a time period after settlement.

3. Lender Fees - When you obtain a mortgage, fees are paid out to the company that packages all of the financial documents needed to issue the loan.

4. Homeowners Insurance - Often you will pay a portion of your homeowners insurance premium for the year upfront at the closing table.

All of these can be estimated by your Lender when obtaining your preapproval so you can truly understand what your total out-of-pocket cost is going to be on closing day.

Coming back to the $200,000 purchase example ... if you take the 5% down payment of $10,000, closing costs could be in the range of $8,000! That means our total out of pocket will be $18,000.

*HOWEVER*

There is a way to reduce this amount by creatively structuring our offer. We can ask for something called a Seller Concession which would reduce your closing costs and make it more affordable! We'll touch on this later : )

Do you have more questions for me? Connect with me here.