It’s no secret you’ll need some upfront cash when buying a home, but just how much do you need and where does it all go? Preparing for your upfront and out-of-pocket costs before you begin your home search will help get you into your new home faster and avoid unexpected delays.
When you write an offer on a home, you’ll be asked to include a deposit. This is considered earnest money, a good faith deposit to the seller as a sign that you will honor the real estate contract, should they accept it. The amount can range from one-half to 5 percent of the purchase price. Your earnest money deposit will be held in escrow until closing and will be applied to your closing costs.
Closings costs include all fees and expenses related to making the loan and closing the purchase. This includes attorney fees, title fees, transfer fees and transfer taxes, as well as appraisal fees, document preparation fees and title insurance. These fees can range between two and 5 percent of the purchase price. When submitting your offer, consider asking the seller to help with closing costs. Sellers can normally contribute to these expenses to help buyers close the deal.
The down payment is the amount of the purchase price the buyer pays upfront, which is not financed in the mortgage loan. Depending on the type of loan program you choose, you can expect to pay from three to 20 percent. Some programs offer no down payments based on how your loan is structured, such as the APGFCU 80/20 Mortgage.
A point is an upfront fee you pay in conjunction with your mortgage loan. This fee is sometimes assessed to receive a lower rate, or in some cases, to qualify for a mortgage if the buyer has poor credit. One point is equal to 1 percent of the mortgage value. So, on a $250,000 mortgage, a lender would charge $2,500 for a mortgage with one point.
In some cases, it may make sense to pay the points if you can afford the upfront cost. If you plan to be in the home for a long time, the reduced rate associated with paying points may reduce your total interest over the life of the loan and reduce your monthly payment.
Be prepared. Get an estimate of your upfront costs before you commit to a purchase. You don’t want to come up short at the closing table.
Learn about APGFCU’s home loan programs to find one that fits your needs or call 888-LOAN-391.
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