How Much Cash Will I Need?
The amount of actual cash that it will take to move into your new home has dozens of variables associated with it. However, the following can be a helpful guide.
Down Payment – The down payment may be as little as the FHA required 3.5% of the cost of the home. Conventional mortgages may require 10% – 20% for conforming loans (under $625,000 in California) or 25% or more for jumbo loans.
Points – The lender charges points to cover the costs associated with originating the loan. These costs include processing, commissions, overhead, marketing, and underwriting. Various brokers, banks, and others will charge varying amounts of points, and may even attempt to use low points as a way to convince you to use them as opposed to another lender. The reality is that these expenses are real and will find their way into your loan, one way or the other.
In almost all cases, you can incorporate the points into the loan to be paid over the life of the mortgage. So, as to how much cash you need for points … probably none.
Closing Costs – Below are a list of possible closing costs. They will generally cost approximately 1.5% of the value of the home for a purchase and 1% for a refinance. Jumbo loan percentages will be about .025 to .05% less. These cost can also be included in the amount of the loan in almost all cases, so out of pocket cash requirement can also be zero for closing costs.
- Appraisal – The appraisal is required to determine the fair market value of the home.
- Credit Report
- Closing Fee or Title Fee – This fee is paid to the title company for conducting the closing.
- Title Company Title Search or Exam Fee – This fee is for doing a detailed search of the property records for your home. The title company looks at prior deeds, court records, property and and name indexes to ensure that there are no liens or other problems associated with your ownership of the property.
- Survey Fee – A survey of the property will likely be required to verify boundary lines for your property and to ensure that there is no encroachment on the lot.
- Flood Determination/Life of Loan Coverage
- Courier Fee
- Title Insurance (Lender’s Policy) – This covers the costs of assuring the lender that the lender’s mortgage is a valid lien and that you are the true owner.
- Title Insurance (Owner’s Policy) – This is an insurance policy protecting you should someone ever challenge your ownership of the home.
- Homeowners’ Insurance – Your first year’s insurance may need to be paid at closing.
- Buyer’s and/or Lender’s Attorney Fees (Not required in all states – $400 and up) This fee is paid to the attorney who prepares and reviews all of the closing documents for you and/or the lender.
Therefore, regarding the loan and legal costs, you may be able to move in for as little as 3.5% cash. However, in budgeting for the move, always take into consideration actual moving expenses such as: new furniture, drapes, appliances, or other immediate improvements to the property, moving furniture from your previous residences, and utility hook ups and deposits.