How Much Money Do I Need To Buy A House?

The mortgage lender will give you a mortgage, but a down payment will be required. Some of the most popular questions is how much money do I need down? How much money do I need to close?

We always talk about down payment, but the reality is you will need both down payment and closing cost to purchase your home.

There is a wide variety of loan programs with minimum down payment requirements ranging from 0% to 20%, and closing cost can run an average of another 3% to 4%. These percentages are based on the sales price of the home. Plus, some loan types require you to have additional cash reserves after you come up with upfront costs.

Calculate Your Cash To Close

The costs of buying a home will vary depending on things like the price of the home, type of mortgage, property taxes, and home insurance. Closing cost include a lender fees, and third-party fees  such as the appraisal, credit and title reports. Also included in this amount are items that you pay ahead of time, like property taxes and homeowner's insurance, as well as recording fees, transfer taxes and prepaid items such as the first year of homeowners insurance.

Cash to close typically totals around 3% to 5% of the purchase price: higher percentages for lower-priced homes, and on the lower end for higher-priced homes. That doesn’t mean that those buying higher priced homes pay less, it just means that the percentage may be lower. For instance typical closing cost for a home of $150,000 may be around $5,000-6,000, which is 5-6%, but a home of $450,000 may have closing cost around$15,000-18,000, which is 3-4%. Closing costs don't go up or down in direct relation to the home price. For example, a home valued at $150,000 and a home valued at $450,000 could have identical escrow fees, whereas appraisal, title fees and loan origination fees could vary widely based on these home prices.

If your down payment is less than 20%, it is common for your lender to require you to maintain an escrow account for your taxes and insurance. To fund your escrow account your lender will typically collect four to six months of property taxes upfront. There is a huge cost difference when comparing a house with a $100-per-month tax bill and one for which taxes run $500 per month. Home insurance cost can also vary and cause a cost difference. For instance a home $200,000 home can may be insured with one insurer for $75-per-month and another for 100-per-month.

If your new home is in a community with a HomeOwner Association (HOA) you can expect additional cost for the initiation dues and monthly fees.

But you can arrive at a broad estimate by considering average costs.

The best way to find out your closing costs is to get a personalized estimate from a mortgage broker or lender. They will provide a written estimate of your "cash to close," which is the total amount you need to complete your mortgage. Then they will verify that you have, or will have, enough in your accounts to close the loan, via two months of bank statements.

Bottom Line

Understand these cold hard home buying facts and you’re well on your way to buying a home you’ll love.

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