Purchase Funds Required to Buy a Home

 

Buying a home is not cheap.

Unfortunately, many prospective homebuyers begin the home-buying process unaware of the full scope of the purchase costs—and the available methods for reducing or eliminating those expenses.

This chapter will review two elements regarding the funds you need for the purchase:

• Types of expenses
• Analyzing funds and alternatives

 

Worksheet: Purchase Funds Required

The borrower must show that there are sufficient liquid assets to qualify for the loan program requested.  Typically, the following asset requirements are required.

 

Item	Amount	Explanation
Down payment	$	For most single-family homes, down payments of 3.5% to 10% are typical.  Two-unit properties normally require 20% down; 3-4 unit properties often require at least 25% down payment.
Closing costs	$	You should estimate at least 2%-3% of price or $2,000 (whichever is more) in projected closing costs at the time of settlement.  But there are no closing options, as well.
Insurance	$	You must purchase and prepay a full year’s homeowner’s (hazard) insurance coverage, plus flood insurance (extra), if in a flood zone.  Insurance normally runs $400-$500 per year for most single-family homes and up to $600 for 2-4 units.  Condominiums are exempt, as property insurance is part of the assessments.
Escrow impounds	$	You will need to place up to three months of property tax, homeowners insurance, private mortgage insurance (PMI), flood insurance and condominium assessment payments, as applicable, into an escrow account.
Reserve requirements	$	You will need to show that even after paying all other costs, you will still have enough liquid assets equal to at least two months of projected housing payments.
TOTAL	$	Again, there are always exceptions and alternative options — so speak with a mortgage loan professional if you see potential challenges.