How much cash do I need to buy a house?

Hint:  it’s not just your down payment!  To prepare for buying a home, you’ll need to save cash for a few parts of the process.

1.  Down Payment
Obviously this is the big one.  How much is appropriate?  Well 20% has been the industry standard for a long time, and it shows a seller you’re not only serious about your offer but also that you’re a capable buyer.  For a seller looking at 2 nearly identical offers, the one with a larger down payment will often win out.   

The biggest reason a transaction falls through in Escrow is the buyer’s inability to secure a mortgage.  If you have a larger down payment, the risk of this goes down and your appeal to the seller goes up! 

That being said, if you’re a first-time buyer and slightly cash poor, 10-15% is appropriate.  Similarly, you may qualify for an FHA loan.  An FHA mortgage requires a great credit score, but only requires 3.5% down.  If you’re buying a condo, keep in mind that not all buildings will allow FHA financing.  I can provide you a list of the “FHA-approved” condominiums if you’re curious.

2. Inspections
The cash you’ll need for inspections can range anywhere from $300 to $1000 depending on the type of property you’re purchasing.  A condo that is 500 square feet will only take an inspector an hour or so to review, and a typical fee is about $325.  If you’re inspecting a 2500 square foot home, however, inspections will start around $400 and can take a few hours to the entire day to complete. 

In addition to a general inspection, I often recommend buyers have a sewer scope done for single-family homes.   They take about an hour, run you about $225-$275 and are very “enlightening”!  Basically, the scope company comes out to the property and sends a little camera down the sewer line.  They can detect red flags like cracks, large roots, clogs, or separations.  Worst case scenario is you find out the property needs a new sewer line ($100,000!) and best case scenario you get peace of mind.

There are a variety of other inspections you can have completed, like a furnace evaluation, pest inspection, or water line survey.  It really depends on the type of property you’re buying and what turns up in the general inspection report.  In any case, be sure to set aside at least $500 to cover inspection costs during your purchase.  Doing your due diligence up front with inspections can save you a lot of heartache and costs in the long run!

3. Closing Costs
The lender that processes your loan, the Escrow officer that closes the transaction, and taxes and state fees all cost money.  Typically you can expect to pay 3-5% of the home purchase price in these types of closing costs.  In a buyer’s market, you can often negotiate seller-paid closing costs as part of the deal.  Similarly, your lender may approve you to wrap them into your loan so they just become part of your monthly mortgage payment. 

To calculate your estimated closing costs, visit our wonderful Escrow company’s site and click on the ”buyer estimated closing costs” link.

4. Earnest Money
When you submit your offer to your seller, you include what’s called an Earnest Money Deposit.  This shows the seller you’re so serious about your offer that you’re willing to put money down from the get go.  Your earnest money deposit is not in addition to your down payment, but part of it.  Still, it’s cash that needs to be liquid and available when you make your offer.  The amount of the earnest money check is up to you.  The less you put down, the weaker your offer.  Typically it’s anywhere from 1-5% of the purchase price.

5. “Miscellaneous” Fees
Depending on what county you purchase in, there may be other fees involved in your transaction.  In San Juan county, for example, there is a 1% fee that goes toward the preservation of the islands.  It is typically buyer-paid.

Questions?  Email Erin or give me a call (206-799-9176).  I’m always available for a Starbucks rendez-vous to chit chat about real estate!