Buying a house is still a pivotal point in life. Your funds play a key role in your ability to get a loan. If you’re serious about buying a house or will be, how much of your income you should be saving to realistically get the keys…
Ask Yourself Shorter Term Or Longer Term?
Short Term– Lenders look at your pretax income when determining how to qualify you for a mortgage loan. A would be home buyer plan ought to do the same, for determining how much to stock away for the big day. Saving 20% of your income could catapult you into purchasing a home in the next 12 to 16 months depending on your local real estate market. For example if you’re earning $96,000 per year, that’s $19,200 saved after one year $25,600 saved after a year and six months, plenty of funds to make home-ownership tangible.
Longer-term– at least 10% percent of your pretax income is a great place to begin. Using the same example of $96,000 of income, that’s $9600 per year in savings which would take an extra year to come up with the same type of cash in the shorter term approach.
Stocking away large sums of cash is no easy task, requires diligence and attention to detail and the discipline to consistently save despite liabilities. The following accounts can assist in cash accumulation during your home savings process.
Great Sources Of Acceptable Funds:
- 401(k)’s, if your employer matches a percentage of your monthly contribution, this can aid you in purchasing a home faster as the majority of 401(k) accounts have the ability to borrow against for home buying purposes. For example- if you are receiving a 50% match of your monthly contributions your 401(k), you can accelerate the time it takes you to save up the cash.
- IRA- these accounts grow with the market and have the same concept as the 401(k) although without the match. Such an account is a great place to accumulate money in interest-bearing account that has provisions to purchase a first home.
- CDs and money market accounts- these accounts also grow with the market, but be sure to ask your banker about early cancellation fees.
How Much Cash For How Much House Price?
When you buy home for the first time, there’s the down payment which is the difference between the purchase price and the loan amount and then there’s closing costs, equaling ‘total cash to close’. Closing costs are roughly 2.25% of the purchase price. So if you’re looking at a home a $500,000- plan on closing costs to be around $10,000 for example. How much down payment needed will depend on mortgage program.
*Quick tidbit on loans
Conventional financing -needs a minimum down payment a 5% (varies on maximum loan size in your area)
FHA financing- needs a minimum down payment of 3.5%
USDA financing- needs no down payment
VA financing- needs no down payment
Home Path Financing- needs 3% down payment
Running the Figures…
On home priced at $500,000 it’s going to take $27,500 to seal the deal, with an FHA Mortgage.
$500,000 purchase price
$10,000 closing costs
$17,500 3.5% FHA down payment
Totals $27,500 as total cash needed.
*Mortgage Tip*: remember the lower the down payment, lower the total cash to close means a higher monthly mortgage payment. Conversely, the larger the down payment, the lower the mortgage payment as the percentage of associated mortgage insurance changes with more equity used to purchase the house. 20% down is what usually takes to not need monthly PMI.
If you have been diligently saving for a house, and still have not been able to purchase a property and are diligently saving your money talk to a lender about getting pre-approved. Perhaps it’s time to reevaluate how much percentage of your income is going to saving relative to house prices. Together we can make a plan to get you into a house you can afford.
RELATED MORTGAGE ADVICE FROM SCOTT SHELDON
View More from The Mortgage Files:
begin your mortgage journey with sonoma county mortgages
Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!