I just received the following question from one of our future clients and Instagram followers today, and I knew it was the perfect blog post to write for our client and for you!
She asked "How much should I save before buying a home?"
In order to determine how much money you need to save, you first want to understand the costs of buying a home. The costs are separated into two different categories:
Settlement Costs
Post Settlement Costs
SETTLEMENT COSTS
Settlement costs refer to the costs associated with actually purchasing a home. These costs are as follows:
Inspections
Down Payment
Closing Costs
POST SETTLEMENT COSTS
After settlement, there are various costs you definitely want to keep in mind. These costs can range according to your own budget and situation,, but you want to roll them into your budget, so that you don’t come up with any surprises. These costs are:
Moving fees (movers, boxes, truck rental, etc)
Repair and/or renovation costs (do you have to make repairs? Are you fully renovating? Just painting? A few DIY projects to spruce your new home up?)
New furniture
Home decor
Now that you know the 2 categories of home buying costs, we’re going to unpack the settlement costs. It’s never a straightforward number, because every Buyer’s situation is different, but this will give you a good idea.
INSPECTIONS
Inspection costs are due usually within 2 weeks of signing contracts, as that is in the typical inspection period according to the New Jersey Real Estate Agreement of Sale. Depending on the type of home you are buying, you may need different inspections.
We always recommend a general home inspection & termite inspection with qualified reputable inspectors. This cost is usually between $400-$1000, depending on the size of the home. (Larger homes require more time and documentation). Aside from home inspection, you may need any of the following inspections:
Lead Based Paint
Radon
Pool
Septic
Well
Underground fuel tank
Stucco
Bulkhead/ Piling
Soil
DOWN PAYMENT
Your down payment will vary widely, based on the type of mortgage loan that you are obtaining and your credit score/ debt to income ratio.
If you are taking out a conventional mortgage, then you will need to put down anywhere from 3% to 20%, although many buyers choose to put significantly more down, in order to finance a smaller amount. When it comes to conventional loans, your lender will help you decide what is the best option for you, based on your own goals.
If you take an FHA loan, you will need 3.5% down, and if you are a VA or USDA buyer, you can buy a home for literally ZERO DOLLAR DOWN. My husband is an Army Vet and we have used the VA loan 5 times! In order to purchase USDA, you must buy in specific rural areas. Thankfully, we have a lot of USDA eligible land here in South Jersey, so we do serve many clients who use USDA loans!
A portion of your down payment will be due at the signing of the contract, in the form of an “Escrow Deposit”, also known as a “good faith deposit”. This is usually equal to 1% of the purchase price of the home. The remainder of the down payment will be due at settlement.
CLOSING COSTS
Closing costs are the fees you pay when finalizing a real estate transaction. They usually run between 2%-5%. The reason that they vary so much is because it depends on several factors. In fact, closing costs can be broken up into 4 parts:
Title/ Conveyance Fees
Lender Fees
Prorations
Escrows
Title Fees are fees paid to the title company to close the loan and to insure the title against anyone who may try to claim ownership to the property. The conveyance fee is a fee paid to a real estate brokerage for transaction processing. This fee is the only fee that a buyer will pay to a Broker. The commission is paid by the Seller.
Lender fees are fees that a mortgage broker or bank will charge in order to process the loan on your behalf. They can vary, based upon the lender.
Prorations are money that is due to the Seller. For instance, let’s say you purchase the home in February, and the Seller has paid the taxes through the end of the quarter. You will need to pay him back for the previously paid taxes.
Escrows refer to the amount of money you have to put into your escrow account, so that your taxes and insurance are paid out. This can vary, based on what time of the month you move in and other factors.
To bring it back home, in order to figure out how much you need to save, simply calculate what you’ll need for both your settlement and post-settlement costs.:
Down payment
Closing costs: 2 - 5% of the purchase price
Inspections: $400 - $2,000
Moving fees (movers, boxes, truck rental, etc)
Repair and/or renovation costs
New furniture
Home decor
If you’re ready to take the next step and find out what your loan and down payment options are, contact us or call our favorite Loan Officer, Greg Malamut with Green Tree Mortgage at (609) 432-9919 to discuss your loan options/ down payment options!
Peace, love, & good vibes,
Christina Sciarretta
