One of the biggest concerns of first time home buyers when they’re looking at getting their first mortgage is just how much money they’re going to require. Qualifying for a mortgage is the first hurdle to overcome, but that only gets them so far if they just don’t have the cash that they need to provide to follow through with a purchase.
Understanding what you’ll be responsible for paying for in cash is good information to have before you even submit a mortgage application. The specific costs can vary depending upon the state that you live in, the cost of your home and a few other factors, but here are some basic things to consider that will contribute to your costs:
Down Payment Required for a Mortgage
In order to qualify for a mortgage, you will have to produce a down payment as a mortgage cannot cover by law the full cost of a home. The specific amount required for a down payment depends upon state guidelines as well as the type of loan. FHA mortgage loans offer the lowest down payment options for those who qualify, requiring under 3.5% of the purchase price down. Typically, first time home buyers put down less than 10% of the purchase price when they are qualified to do so.
Mortgage Closing Costs
In addition to requiring money for your mortgage down payment, you’ll need to save money for closing costs. This is something that you may be able to get paid by the seller of your new home, but as this is not something that’s guaranteed, it is wise to have some money on hand to pay for all of the costs of purchasing a home that cannot be rolled into your mortgage. If you present a mortgage lender an offer that does not include closing costs covered by the seller, often as a first time home buyer, you are required to prove that you have the money to cover them. 1.5% to 2.5% of the purchase price is a fair estimate for your closing costs, and somewhere in this range is what a mortgage lender will typically need to confirm.
A mortgage broker can help you go over the estimated amount that you’ll need to pay based on your target purchase price so you can be prepared in advance to make your first home purchase!