What you may not realize is that many first-time homebuyer programs and grants offer financial help, and you may be eligible for various types of assistance.
Here are nine first-time homebuyer programs and grants designed to help you land a great mortgage and get a place of your own.
How Much Cash Do You Really Need to Buy a House?
To buy a house, you need cash for a down payment…and then some. Here’s a look at the actual amount of money you’ll need on hand at closing to purchase a new home.
One of the biggest shocks of buying a home is finding out that you need way more cash to close on a house than just a down payment. It’s hard enough to save for the down payment on your home, only to find out that you need more—often a lot more—in order to complete the transaction.
Let’s look at how much cash it takes to actually purchase a home. And where possible, suggest ways that can reduce or even eliminate the additional cash requirements.
The actual down payment
This is the only cash outlay in the home-buying process that’s obvious to most buyers. It is usually expressed as a percentage of the purchase price of the property. For example, if the purchase price is $200,000, and you’re required to make a 10 percent down payment, you’ll have to pay $20,000.
That’s the easy part.
How much do you need for a down payment on a house?
It varies. With most lenders, if you want avoid paying additional private mortgage insurance (PMI), you’re looking at a 20 percent down payment. But coming up with 20 percent may be difficult for many first-time buyers, so mortgage lenders have options with down payments of 10 percent, 5 percent or—if you qualify for special FHA loans or VA mortgage loans—as little as 3.5 percent.
This is another good reason to shop around for the mortgage lenders.
Closing costs
This is where things start to get a little complicated. This is because the cash outlay to make the purchase becomes (often) much higher than the down payment alone.
Closing costs may run up to two to three percent of your loan amount
On a $200,000 mortgage, you’ll need to come up with between $4,000 and $6,000 in addition to your down payment.
Closing costs vary from one state to another. This is due to differences in either the real estate transfer tax, or mortgage “stamps” (government taxes collected based on a percentage of your mortgage loan amount). They can also vary based on different rates charged for appraisals, attorneys, and even title insurance.
Closing costs can also vary from one lender to another, and even from one loan to another. For example, each lender charges a different application fee. In addition, lenders often charge “points”—so named because they represent a percentage point of the loan amount.
An origination fee is one kind of point. It represents compensation to the lender for placing the loan. Discount points are another type. They represent points paid to lower the mortgage interest rate on a permanent basis.
There are actually two alternatives that can either reduce or completely eliminate closing costs:
- Negotiate for the seller to pay your closing costs.This will only be permissible in areas where this is common practice.
- Negotiate premium pricing with your lender. This is where you pay a higher interest rate on your mortgage in exchange for the lender paying the closing costs.
Either may be a good option, particularly if you are making a minimum down payment, like five percent, and adding closing costs on top would make your cash outlay significantly higher.
Prepaid expenses
These are probably the most confusing charges for home buyers, but they are completely necessary. With most mortgages, the lender will put real estate taxes and homeowner’s insurance in escrow. This means that those charges will be included in your monthly payment, and paid by the lender when due.
In order for that to happen, the lender needs to collect certain amounts upfront, to ensure that the funds are available to make the payments when they are due. The escrow accounts are set up to pay the charges on the next due date, while a portion of your monthly payment replenishes the escrow account for the due date after that.
Depending on where you live, and the frequency of real estate tax collections, the lender may have to put anywhere between two and 12 months of real estate taxes in escrow. If the taxes on the house are $250 per month, and a six-month escrow is required, that will translate to a prepaid expense of $1,500 at closing.
The same applies to insurance.
For homeowner’s insurance policies, you’re typically required to prepay a one-year homeowner’s insurance policy on the house, plus an extra two months of premium charges to the lender’s escrow account. The lender may also escrow one or two months of premiums for PMI as well, if required.
Depending on where you live, prepaid expenses may come to as much as two percent of the loan amount.
Fortunately, you can have some or all of the prepaid expenses paid for you by either the seller, or by premium pricing paid to the lender. A third option is to decline the escrow arrangement by the lender. This will require that you make a down payment of at least 20 percent.
Utility adjustments
Utility adjustments can include a large number of charges. Luckily, they seldom come to more than a few hundred dollars. They basically represent utility costs paid by property seller in advance.
For example, if a seller fills the heating oil tank just before the closing, you’ll be required to reimburse the seller for the unused oil. This will happen at the closing table. Similar charges can be incurred if the seller has prepaid other utilities, such as water, sewer, or trash removal.
Still another expense that could require adjustment at closing are homeowners’ association fees. In many homeowners’ association neighborhoods, member fees are paid on an annual basis. If the seller has paid the fee for the full year, and you’re closing on the house on March 31—three months into the year—you will be required to reimburse the seller for nine months’ worth of fees. There may also be a fee to the HOA to get started. They may call it a transfer fee or something similar. Basically, it’s a lump sum upfront from the new homeowner to get into the HOA.
Since these adjustments are direct expenses, they generally cannot be paid by the seller, since doing so could constitute an inducement to complete the transaction.
Lender-required “cash reserves”
This one takes many home buyers by surprise. It isn’t a closing expense, but lenders require that you have so much cash left in savings after all closing costs are paid.
Lenders have a cash reserve requirement to avoid a buyer “closing broke”. They don’t won’t you to end up in an early-term default. This requirement ensures that the borrower will be able to make their payment during the first few months.
The most typical cash reserve requirement is two months. That means that you must have sufficient reserves to cover your first two months of mortgage payments. So if your principal, interest, taxes, and insurance (PITI) come to $1,500 per month, the reserve requirement will be $3,000.
These are not funds that must be deposited with the lender. But the lender must be able to verify that you will have the funds available in a liquid source. These include savings account, checking account, or money market fund—after closing on the property. Generally speaking, they frown on using retirement assets for this purpose, since those funds cannot be easily liquidated.
Summary
If you are buying a home for $200,000 and need a 10 percent down payment, the total amount of cash that you may need to provide or at least show looks something like this:
How much cash you really need to buy a $200k home
Down payment 10 percent of $200,000 $20,000
Closing costs 2.5 percent of $180,000 $4,500
Prepaid expenses 2 percent of $180,000 $3,600
Utility adjustments Estimated $500
Cash reserves $1,200 mortgage payment x 2 $2,400
Total cash required $31,000
As you can see, you could need more than 1.5 times your down payment to successfully close on a house.
That’s why it’s important to include the additional cash requirements in your home buying plans.
Sustainability. Concrete floors are a sustainable option if you use an existing concrete slab, avoiding the consumption of new materials. And they need not be relegated to basements or garages. Once the concrete is sanded down and polished or sealed.
Easy care. The only maintenance required of concrete floors is weekly mopping with soapy water.
Economical. The cost of concrete floors is very low, about $2 to $6 per square foot to polish a plain gray slab, giving it a lustrous sheen. The concrete’s tonal differences, subtle cracks and aggregates take on a stonelike, natural feel. More elaborate finishes cost around $5 to $8 per square foot. Staining concrete floors has been a popular option for years— different colors and application techniques combine to create a finish that’s unique to the home, with subtle variations across the floor. Other decorative effects, like scoring in grid pattern lines, cost around $5 to $8 per square foot. These are still very impressive. With a high-gloss seal, the floor can be transformed to look like limestone. An acrylic sealer could be used in the interior application to give it that wet look. In the range of $7 to $15 and up per square foot, you can get highly decorative faux finishes, such as a marbled effect.
Longevity. A floor that has been polished and maintained can be expected to last a hundred years or more.
Versatility. For exterior applications, silicone-based penetrating sealers can be used to avoid the wet look. We can see here how concrete is a good flooring material for indoor-outdoor transitions.
- Full Home Rewiring: $4,000 plus.
- New HVAC Units: $2,500 to start.
- Complete Roof Replacement: $5,000 plus.
- Major Foundation Repairs: $10,000-$30,000.
- Plumbing: $2,000 for serious issues.
Here’s an essential regular home maintenance checklist every American homeowner should perform:
- Sewer Pipes: Roots from trees living close to your home can clog sewer pipes and cause sewage to back up into your home. Be sure to have a professional sewer and drain company clear your home’s line at least once a year.
- Water heater: Indications of corrosion or leaks mean trouble. Flushing your water heater helps rid it of mineral deposits that can hasten corrosion. Check the pressure release valve yearly to prevent an explosion.
- Wiring: Look for cracks, breaks, tears and anything that looks like a fire hazard. Check outlets and fixtures for anything that might be loose and cause electrocution. Call in an electrician for any needed repairs and adjustments: Wiring is something you don’t want to DYK.
- HVAC: Change air filters every 30 to 90 days to take the strain off your HVAC system and extend its life. Annual maintenance checks by a professional technician for the air conditioning in the spring and the furnace in the fall will allow your home to avoid breakdowns during the hottest and coldest times of the year.
- Roofing: Remember, some of the most pricy and imperative home repair issues come from above and your home’s first line of defense. Undiscovered and unattended to leaks can lead to water damage and rot. Check areas of penetration such as skylights, flashing and vents. Unclog gutters and ensure that downspouts direct water away from the foundation.
- Termites: Forget water, wind and fire, termites pose the greatest threat to your home’s wood structures. Look for signs of their wood-terminating presence and call in a termite control professional and repair any structural damage.
- Wet Basements: The potential disasters are multi-fold: Improper grading, downspouts dumping water too close to the foundation, a concrete patio or driveway angled downward toward the foundation and butting against it. All these issues can cause water seepage and eventually structural damage. Eliminate basement leaks with waterproofing.
- Foundation Damage: Remember, an average $10,000-plus repair bill awaits homeowners dealing with major foundation issues. Inspect the basement, crawlspaces and foundation for signs of water penetration and foundation movement such as drywall cracks, door frames out of square and uneven floors.
- Mold Remediation: Mold growth larger than 10 square feet requires professional remediation due to its serious health hazards. Look for the telling signs of mold: Water stains, water damage and areas of obvious excessive moisture. To prevent mold from growing, eliminate the source of the moisture, fix leaks and properly ventilate any damp areas.
2. Foundation Damage
3. HVAC Repairs
4. Mold Remediation
5. Faulty Roofing
6. Sewer Pipe Problems
7. Termite Infestation
8. Water Heater Failure
9. Wet Basement
10. Loose or Frayed Wiring
Fix a Faulty Light Switch
Sometimes you turn on the light but nothing happens; or sparks crackle, and the light turns on. It’s disconcerting, but most likely it’s an easy fix. An electrician will turn off the power, take off the faceplate, check and perhaps tighten wires; or replace the switch. All told, it will take less than an hour.
Labor: $50 to $100 per hour
Materials: $1 to $6 for a single pole light switch
Total: $41 to $106
Repair Ice Damming
If your house isn’t insulated correctly or your roof isn’t designed correctly, melting roof snow can run off and freeze around roof edges. Eventually, this can form an ice dam that creeps up your roof, damaging shingles and forcing melting water into your home.
One popular solution to ice damming is to install a heating cable along the roof’s edge, which warms the area and prevents freezing. It’s not a DIY job. Roofing contractors will install the cable, and an electrician will install outlets that will juice up the cable. If you want a thermostat to turn the cable on and off automatically, that’ll be extra, too.
- Labor and materials: $30 to $60 per linear foot
- Total: $371 to $1,319 (average job cost)